What is Pay Mix in Sales Compensation?
Pay Mix Definition
Pay mix is the ratio of base salary to target incentives that make up On-Target Earnings (OTE). For example, a 60/40 pay mix means that 60% of OTE is fixed base salary, and 40% of OTE is Target Incentive (TI), or variable pay.
A more “aggressive” pay mixformula tends to be 50/50 or 60/40, while a less aggressive range tends to be 80/20 or 90/10.
While the term “pay mix” sounds a bit like a snack you’d find at a party, how you determine pay mix policy for each sales role shouldn’t be a directionless game of darts or pin the tail on the donkey.
What Determines Sales Pay Mix?
There are a number of factors that go into your pay mix analysis, all of which directly contribute to how aggressive your ratio should be. These elements include sales team member roles, the type of selling each person is tasked with, and the type of structure that is going to motivate them to sell. Of course, the length of the sales cycle, transaction volume, customer type, and other components all help determine the optimal pay mix. More on how to settle on your ratios by role, below.
Download our guide, "Designing Sales Compensation Plans," to learn how to use incentive comp to inspire your teams to perform above and beyond the competition.
But first, just as important as knowing what determines pay mix is the understanding of how your ratios will dictate the working styles and activities of your people. Remember, this is compensation, and how people expect to earn a living to support their personal lives. The numbers you set greatly impact how your team goes about their business.
This setup is basically pushing your reps to work heads-down and independent. Stress management becomes an extremely difficult task under such circumstances, and weekly payouts might be required.
Often a good starting point, allowing organizations to exercise influence, while giving reps enough security in their portion of fixed pay. With half of their earnings being variable, reps are still motivated enough to go out and sell.
On the other end of the spectrum, there is little motivation tied to such a plan. That said, it has its place among admin staff, with their small portion of variable pay helping to connect them to the team and team’s success.
How do You Select the Optimal Pay Mix?
Didn’t we just answer this immediately above? Yes, and no.
The factors mentioned above should certainly guide your decision, but one key question is “what is the rest of your industry doing?” How are other companies in your local area compensating their people? How are companies of similar size paying their reps?
Benchmarking is the answer, giving you the necessary insights into how other companies are structuring their compensation plans, and the resulting impact on their bottom line. Once you’re able to compare how you stack up, you’ll have a lot more confidence when it comes time to pull levers on your compensation strategy.
With a sales compensation data benchmarking tool, you’ll be afforded transparency into the levels at which other companies are setting their numbers, what percentage of reps are making their quotas, and average sales pay mix within their organizations.
Typical Pay Mix by Sales Team Role
Generally speaking, jobs with the most influence on the purchasing decision should have a more aggressive pay mix. In other words, when you think “pay mix,” think persuasion, and just how big of a part each role plays in persuading a customer to purchase.
No single role persuades more than the Account Executive, as it is their responsibility to close the deal. Their pay mix should reflect that, and should be aggressive enough to encourage them to attack new business opportunities.
In terms of benchmarking, among Xactly customers, we see Account Executive pay mix at 50/50 or 60/40. The percentage of pay at risk also depends on other factors that make your product harder or easier to move. For example, a well-established brand is easier to sell than a lesser-known player. In this case, the ratio for reps working with a well-known company may be less aggressive than the pay mix of those working with newer firms.
Sales Development Rep
There is no denying that the Sales Development Rep plays a key role in the sales process by bringing in new opportunities to sell. But, going back to persuasion, the Sales Development Rep has less influence over the final result, and thus, their pay mix should be less aggressive.
The Sales Specialist falls in the middle of the Account Executive and the Sales Development Rep. No, they aren’t the one closing the deal, but if they’re the final presenter of a demo, their activities are closely tied to persuasion. So, their pay mix should be less aggressive than the Account Executive, but more than that of the Sales Development Rep.
Customer Success Rep
Because they work with existing customers and are primarily concerned with their satisfaction, the Customer Success Rep’s role isn’t as risky as that of the Account Executive who is tasked with bringing in new business in order to get paid. So, the Customer Success Rep should have a less aggressive pay mix formula, with less upside as well, which we will detail later.
The Sales Manager is responsible for the entire sales team, above all else. One component of that is coaching reps to close more business rather than closing the business themselves. They indirectly play a part in the persuasion process, so a manager’s pay mix is typically less aggressive than the reps who report to them.
Related Topics You Should Know About
The concept of variable pay is powerful, which means it can greatly help in the motivation of your team, or it can greatly hinder it. Of course, it all depends on the pay mix policy—allow for too much variable pay and reps operate independently, and with blinders; you’re almost de-valuing the importance of necessary administrative tasks, and the need for reps to work with the rest of the team. Too little variable pay, and reps just aren’t motivated enough given their contentment with guaranteed salary.
Pay at Risk
When talking about variable pay, you might hear the term “pay at risk” used instead. As the name suggests, reps have a portion of their pay “at risk” of not being distributed should they not achieve their goals. If you’re putting a rep’s pay at risk, you should also offer “upside” as a reward for exceeding goals.
Upside describes the amount of pay available when reps surpass their goals. Instituting upside is a valuable practice, but does require additional planning. When it comes to upside, the same variable pay logic applies: those roles with the most influence on the purchasing decision should have higher upside opportunity; Account Executives will have more upside than Customer Success Reps; Sales Managers won’t have as much upside because they aren’t as focused on closing business.
Pay mix is a difficult thing to get perfect on the first shot, and is definitely not one of those things that you can just set and forget. You’ll need to have the means to clearly track your team’s performance, along with the insights that will give you the confidence to make changes for the better.
For more on benchmarking and how you can discover how competitors pay their people, download our comprehensive guide “How Leaders can use Xactly Insights™ to up Their Game.”
Designing Sales Compensation Plans
With careful consideration and strategic design, you can use incentive compensation to inspire your teams and empower them to perform above and beyond the competition.