Wednesday, October 19, 2011

Expansion Stage Sales Compensation: Are You Paying Too Much or Too Little?


We’ve all heard Tom Cruise’s famous line from Jerry Maguire before. You know, the one where Cruise’s character, in an effort to keep one of his prized NFL clients, energetically repeats a specific phrase?
Having trouble remembering? Maybe this will help.

“Show me the money….” Yup, that one. So, why do I bring that up in a blog that focuses mostly on startup and expansion stage sales teams?

Because, as most CEOs will find out at some point, it’s not easy to decide when and how to show the people that make up their sales organizations that proverbial money. And there are myriad questions that must be addressed to flesh out compensation plans that are fair for each position within your sales team.

For example, should your entry-level inside sales reps be given more salary and smaller bonuses? And what about a VP of Sales — how can you compensate them in a way that centers around an equity stake in the company’s overall results, increasing their motivation to drive revenue? Then there are lead generators. What outcomes or transition points should correlate to their compensation? And how frequently should their bonuses be paid out?

Here’s the short answer to each of those questions: At the expansion stage, the more you can leverage compensation to results, the better off you’ll be in the long term. As the CEO, that means allowing your sales employees — whether they’re a VP of Sales or a field sales rep — to earn more from their sales results than they can from their salary.

In the past, I’ve seen too many companies go the other route.

The problem with salary-heavy compensation, of course, is that it decreases motivation and makes it virtually impossible for a small company to scale. Commission or bonus-focused compensation plans, however, provide tremendous upside for growth and allow CEOs to truly leverage their people. And we’re not talking about a unitary system here that’s only good for the company. Bonus-heavy compensation is ultimately better for everyone, providing ample opportunity for each member within the sales team hierarchy (and the company itself) to make more.

The bottom line is that startup and expansion stage leaders have to understand their growth potential, where they want their organization to go, and how they can compensate to get there.
And, for your employees’ sake, try to keep it as simple as possible. The last thing you want to do is confuse your people. If they’re spending more time thinking about how they’ll get paid than they are working to get it done, it’s a recipe for disaster.

The truth is, every startup or expansion stage CEO should want to show their sales teams the money. Because if compensation plans are structured properly, the distribution of wealth usually means that those people are being paid relative to the value they bring to the company. And in that scenario, everyone stands to benefit.