Designing Sales Compensation Plans for Sales Managers (With Examples)

When it comes to sales compensation planning, you can never start prepping too early, right? Let’s take a top down approach and start by designing the Sales Manager compensation plan.

Like any good leader, the Sales Manager is responsible for their team’s performance, and as such they should be rewarded for their results. He or she is typically measured on similar measures as the team they manage, with potential additional components that are relevant for a managerial role. This alignment ensures that the Sales Manager is steering their ship appropriately and that all the reps they manage row in the right direction. (More on Sales Manager qualities.)

Constructing the Commission Plan for Sales Managers:

Pay Mix and Upside
Part of sales management is accepting responsibility for a team. As a part of that, they need to focus on sales coaching versus closing business, and thus a manager’s pay mix is typically less aggressive than the reps that report to them. Also, it is not unusual for top sales reps to earn more than their managers.

Plan Components
As previously mentioned, Sales Managers should be well aligned with the components of those below. At many companies, reps may not have control over pricing and discounting policies. In these cases, it makes sense to measure reps on a revenue plan component, while the Sales Manager commission structure should be measured on a margin or pricing component.

For reference, here is a sample compensation plan of a Sales Manager role typically used for a Software as a Service company (learn more about the software sales commission plan, here).

On-Target Earnings

$xxx,000

Pay Mix (Base/Variable)

70/30

Base Salary

$xxx,000

Annual Target Incentive

$xxx,000

Plan Components

Annual Contract Value (ACV)

Multi-Year Contracts

Component Weight

70%

30%

Plan Mechanic

Rate

Rate

Cap

None

None

Performance Period

Annual

Annual

Payout Frequency

Monthly

Monthly

Download our guide, "Designing Sales Compensation Plans," for tips on how to structure your plans. Or, build a plan in minutes with our ready-to-use templates.

Things to Consider in Compensation for Sales Management:

Find your Leaders
Your best sales rep is not necessarily the best leader. A top sales leader needs to be able to teach sales skills, keep an eye on all reps, and know where to focus. Questions to consider include the following:

  • Have you promoted your best rep out of the field or have you truly found a sales leader?
  • Do you have a training plan to develop other leaders as you grow?
  • How many people can your leader supervise? Do you expect ride-alongs, direct supervision, daily conversation, and tracking? Be sure to adjust your management span of control accordingly.

Set Reporting Responsibilities
The typical plan defaults to credit with the sum of all deals from their assigned sales reps. When new sales reps are added, they will automatically begin crediting to their management. Questions to consider include the following:

  • Will your manager supervise one type of rep or a sales team of mixed roles (Sales Executives, Account Managers, Lead Generation Reps, etc.)?
  • How do you want to think about crediting the manager? Should any sources of revenue be excluded from managerial crediting?

Set the Quota
The performance period for managers typically defaults to whatever their direct reports are given, including monthly and quarterly goals which might also be set to guide both reps and managers. Questions to consider when managing your sales quota include the following:

  • Should managers have a quota that is over-assigned (i.e., the manager’s quota amount is higher than the sum of the individual quotas of manager’s team)?
  • Are there open positions in the manager’s team? How does the manager’s quota reflect open positions, new reps, and experienced reps?

Set the Opportunity
Many companies vary payout levels based on performance to reward top managers. Think about your sales cycle as you set the manager’s performance period. Other plan components to consider include a revenue-based bonus structure, improved staffing, or expanded territories. You should leverage sales performance management software to review past performance when setting payout opportunities. Questions to consider include the following:

  • How much will a manager earn if all of their reps are at quota?
  • How much will top reps make as compared to their managers?

Download our guide on “Designing Sales Comp Plans” for more on creating plans for your sales team.


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Designing Sales Compensation Plans for Sales Managers (With Examples)

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