4 Tips For Designing A Sales Compensation Plan

Jan 23, 2020
3 min read
It's crucial for a sales strategy plan to offer competitive compensation to attract and retain top performers. Here are 4 tips to get you on the right track.

How do you know if your incentive compensation is competitive? We all like to think that we're paying our reps fair and competitively, but it’s not always easy to tell offhand. However, using data analysis, you can gain strategic insights you need to help you design competitive sales compensation plans and drive higher sales performance.

Competitive sales compensation plays a crucial role in your ability to attract new talent and retain your top performers. In fact, HubSpot reports that the number one reason salespeople leave their organization is for a higher paying opportunity.

To help you get started, here are four easy tips for building competitive sales compensation plans.

1. Strike the Right Balance Between Variable and Base Pay

Getting the right balance between variable and base pay is still the biggest challenge with any sales commission strategy. Because variable pay isn’t guaranteed earnings, you want to use it to motivate sales reps to aggressively drive the sales machine, hit their quota, and max out their incentive plan.

On the other hand, you also need to consider that sales productivity will ebb and flow over the course of a year, and as a result, performance will vary. You need to offer enough base compensation so your reps can pay the rent and stay engaged. In addition, if your company has a longer sales cycle, that needs to be factored into the equation as well–in those instances, you will want a higher base pay.

Tip: Looking at your past sales performance data can help you identify what incentives have succeeded in driving behaviors, trends in periods of high performance, and how different teams across your organization are motivated differently.

2. Tailor Compensation to Different Sales Roles

Research shows that leveraging the right pay mix drives higher sales performance and helps maintains peak levels of quota attainment throughout a sales rep’s career. It’s important to remember, however, that competitive sales compensation isn’t static—nor should it be a one-size-fits plan.

When designing a sales compensation plan, it’s crucial to remember that not all sales roles are the same—and their sales commission structures and incentive plans should reflect that.

For example, there will be variation between commission and base pay depending on the sales role. Account executives (AEs) will have a higher percentage of pay-at-risk to sufficiently incent them to pursue new business. On the other hand, a sales development representative (SDR) will have a less aggressive pay mix because they have less influence than an AE over the final result.

Tip: Consider the varying levels of responsibility for different sales roles and formulate commissions and incentives that they can realistically control in their position. You can learn more (and get commission templates) in our Complete Guide to Sales Team Compensation.

3. Adjust Pay as Reps Gain Experience

Like any other role, as employees gain experience, their pay often evolves with their skills. The same is true for sales. Realistically, you can’t expect the same level of performance from a newly hired rep and a seasoned veteran on the sales floor. Understanding your average sales ramp-up time can be useful in adjusting pay so newer reps are set up to succeed.

In addition, Xactly data shows that there is a correlation between sales tenure and performance, with salespeople achieving their peak quota attainment levels between two and three years in a role. At the five year mark, however, performance tends to decline, which is the best time to consider career development goals for your team.

Tip: Continuously reviewing your sales data on a regular—and ideally, quarterly or annual—basis, you can hone in on performance trends within your organization. This allows you to understand the relationship between your industry, sales cycle, and incentives to optimize your plan and increase performance.

4. Benchmark Incentives Against Your Industry Peers

Perhaps the most important tip to create a competitive  compensation plan is leveraging industry data to benchmark your incentive plans. When you compare your pay mix to other enterprises in your space, you can easily identify opportunities to improve your compensation, attract new talent, and retain top performers.

Benchmarking tools can help you compare pay and performance data more effectively. In fact, Xactly provides users with 15 years of empirical real-world insights to help inform decision making and strategic incentive design.

Tip: Benchmarking can play a crucial role in building a successful sales team—especially when the voluntary turnover rate is at 16%—higher than any other industry, according to HubSpot. But it’s about more than just paying reps competitively. Using Xactly, you can also ensure you are paying your entire sales team fairly and eliminating any pay gaps that might exist.

Seeing the Impact of Competitive Sales Compensation

Your sales compensation plan plays a huge role in the success of your organization; therefore, motivating your reps with the right pay mix and incentives is crucial. By taking advantage of your sales performance data and benchmarking against industry peers, you can leverage key insights to ensure you pay reps competitively and fairly.

Here’s one example to consider: Leveraging Xactly Insights, National Instruments gained benchmarking capabilities that allowed them to quickly analyze relevant industry and peer data to improve their incentive compensation plan. The results were incredible. Read more about their story here.

  • Benchmarking
  • Incentive Compensation
Karrie Lucero
Karrie Lucero
Content Marketing Manager

Karrie Lucero is a Content Marketing Manager at Xactly. She earned marketing and journalism degrees from New Mexico State University and has experience in SEO, social media and inbound marketing.