Last month, a friend of mine told me he got fired from his job. He was a sales leader in a Fortune 200 tech company. He was perplexed why he was fired, as even with a low base salary, with the incentives he earned based on he and his team hitting and exceeding their goals for the year, he made more than $1 million in annual comp the last 2 years.
I can guess why he was fired. He was making too much money, and likely more than his boss.
Some bosses cannot understand why it’s good (and actually great) for your sales leaders and top salespeople to earn more than them. The only reason salespeople earn so much, is because they perform.
Great salespeople are motivated when they are rewarded for performance. Set targets (even aggressively high ones) for your superstars, and they will blow right through them.
And as a CEO or company President, you need to change your mindset about sales compensation.
Sales revenue (and profit dollars) are the lifeblood of any organization. If you are running the company, you cannot be the person responsible for business development and big client sales. Hire yourself a great business development person, and you will have your hands full with a vibrant, growing company.
So, what’s the best comp plan for salespeople? (By the way, that is the number one question I get asked by CEOs.)
- Make their base at a decent level. But be sure you have a larger percentage of their comp at risk (commission).
- Agree upon revenue and profit targets that they are responsible for. I always recommend that comp be tied to both revenue AND profits. If you only pay based on sales growth, then there is no incentive to ensure it is profitable growth.
- Pay commissions as often as you can (in my company, I moved from quarterly to monthly commissions…which kept my sales team motivated every single month).
- Don’t cap their commissions – the more they sell, the more they can make.
- Then, don’t change the plan.
The worst thing you can do for morale is change your comp plan every year. Salespeople like to know, for sure, what their comp plan is, and they don’t like their company to mess with it. It erodes trust. And when trust erodes, then salespeople jump ship.
So, think about this scenario: You have a top salesperson who exceeds their budget every year and gets larger and larger bonuses. And then one year, you realize that the salesperson is making more than their boss, or even more than you.
So, you decide it’s time to change the bonus plan. But your motivation for changing the plan is to make sure that they are not making so much money. Or they are not making more than you. So, what happens?
You change the plan and then shortly thereafter, the salesperson quits, because you reduced their earning capability. And then, they go to work for your competitor.
Don’t be afraid to hire strong salespeople and give them endless earning power. Don’t forget, you and the company benefit too from the growing top line and bottom line.
Onward and Upward,
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