Securing Only The Top Sales Talent available in their given industry sector.
In our experience over the past 13 years specializing in sales, recruitment companies, in general, do not consider how sales compensation plans are perceived by potential employees.
Perhaps we should look at reviewing the following questions:
- Is our base salary competitive?
- Do competing salespeople get paid based on revenue or margin?
- Is our commission structure consistent with that of our competitors?
- Is there a cap on the commissions at our competitors?
- How frequently are the competition’s salespeople paid?
Formulating the right compensation plan clearly is a challenge. Only with these benchmarks can you begin to build a plan that is as good as or even better than those of your competitors.
Both bonus and commission plans are common sales incentive compensation methods to attract, motivate and retain top salespeople, but how should a business decide which is the most suitable method for their business? Several aspects of a company’s selling process and environment influence the plan structure – bonus, commission or mixed – that is suitable for them. The table below summarizes many of the characteristics of the selling process, demand predictability, and sales talent culture that support each plan type.
Bonus Plans
With a bonus plan, each salesperson is typically given a quota for a specific territory, and incentive payments are tied to their performance relative to the defined quota gates, targets or thresholds. An example might be if that the salesperson might receive a first bonus payment at 90% of quota, the second payment at 100% attainment, and a third at 110%. Bonus plans typically include a sizeable salary component as well, so that if the salespeople don’t sell enough to earn the bonus, they will still earn a decent enough living.
Because most bonus plans have a large salary component, these plans are often attractive to salespeople with a longer-term focus who want to stay with a particular firm and build a career. They also attract salespeople who are interested in problem-solving, consulting and servicing customers in addition to selling.
Commission Plans
Commission plans pay continuously for every sale generated. The commission rate is multiplied by a pre-determined performance measure, such as gross profits or sales, to determine a payout. Sometimes the commission rate varies by customer, product or service. Often, the rate varies depending upon the performance level attained by the salesperson. Example: a salesperson might earn 3% commission on sales up to a pre-determined territory goal and 5% of sales beyond that goal. Many commission plans also include a salary component, but typically the variable component is larger than in a bonus-based plan. With most commission plans, the salesperson relies on commission earnings in addition to the salary as an essential part of their income.
Commission plans that pay mostly variable pay with little or no salary tend to attract result-oriented salespeople who believe they can sell anything to anyone. These plans also encourage poor performers to leave the firm as they won’t be able to make enough money to earn a decent living. However, sometimes such plans will attract little company loyalty from salespeople. A salesperson who is paid mostly by the commission is likely to jump ship if a competitor makes them a better offer, and they may take many of their clientele.
Over all, if you want to attract TOP TALENT you need to be in the GAME providing a compensation package that motivates and rewards top performers. Do your homework before introducing your compensation package and revisit your plan yearly to make sure it fits with your company’s overall sales objectives reward what you want to see. Most importantly stayed connected to your sales force, information on what is working and what is not can clearly make the difference in keeping or losing top talent.