Sales Compensation Design Step 4 - Pay Mix

The fourth step in designing sales compensationfocused only on selling, the rating would be 0%. If
plans is what the Pay Mix should be for each salesthe role is focused on only service, the rating
role. Pay mix is the ratio between base salary andwould be 100%. So depending on the focus of
incentive pay at target performance. Commonthe role, the rating would show the percentage
practices that impact this step are competitivewithin the range. Next would be the selling cycle. A
pay analysis, industry practices, compensationshort selling cycle (how about 1 day) would be
philosophy, culture and job dimensions.0% and a long selling cycle (how about 1 year or
In the competitive pay analysis, we would knowlonger) would be 100%. The rating could be
the base salary and total cash compensationsomewhere in between.
levels at different percentiles in the market. ForThe next dimension is the influence on the sale. If
example, if the 50th percentile of base salary isyour customers select your product solely
$50k and if the total cash level at the 50thbecause of the sales rep, the rating would be 0%.
percentile is $100k (meaning that incentive payIf your customers select your product solely
would be $50k), the pay mix would be 50/50. Sobecause of your brand, or your programs or your
this is one data point in determining what pay mixsystems, the rating would be 100% or
should be.somewhere in between. Next is about the
Another common consideration is industryaccount sales strategy. If the job dimension is
practice. What is the pay mix for your directonly to acquire new customers, the rating would
competitors for each sales role? Have you hiredbe 0%. If the job dimension is only to retain
sales talent from your competitors? Can a thirdexisting customers, the rating would be 100%.
party assist you on collecting data from yourThe next dimension is sales skills. If anyone could
competitors? Are your competitors signaling theirbe hired into your sales role, the rating would be
pay mix during their hiring process?0%. If there are specific criteria to hire new
Another common consideration goes back to thecandidates into your sales role, such as an
sales compensation philosophy. Some companiesengineering or nursing degree, the rating would be
select that their pay mix should be higher or100%. Next is management control. If the sales
lower compared to the market. In these days,management process is to kick new hires out of
many companies would like to have a lower paythe office and tell them to sell, the rating would
mix (meaning a lower base salary percentagebe 0%.
compared to the market). One of my clientsIf the sales management process is to have sales
recently hired a new CEO. He wanted every salesreps forecasting their accounts, inputting data into
role to have a pay mix of 60/40 or lower. It isthe CRM system, having sales managers routinely
difficult to change overnight given that most ofriding-along with the reps, filling out call reports,
the roles were paid at a pay mix of 80/20 orneeding approval for pricing, etc. the rating would
higher. And many of the roles were accountbe 100%. The next dimension is product life cycle.
management roles which were pretty close to 80If the product is completely new, the rating would
20 in the market anyway. My recommendationbe 0%. If the product is mature, such as
was not to "shock the monkey" as Peter Gabrielnewspapers or telephone land lines, the rating
would say, but gradually move into a lowered paywould be 100%. Finally, what is the complexity of
mix strategy over time.the sale? If it's low such as selling shoes, the
Culture is another common consideration. One ofrating would be 0%. If you're selling configured
my clients had a sales force that had a pay mixairplanes, the rating would be 100%. An average
of 0/100 meaning pay was delivered by incentiveof all of these dimensions would provide another
only, no base salary. All of the other competitorsdata point for the Design Team in addition to
had a base salary in addition to incentive. Mycompetitive pay analysis, philosophy, industry
client's culture inhibited the change until this year.practices and culture.
And I started with them 8 years ago andLet's assume that the average of all the
recommended at that time to modify the paydimensions average 0%. The tool suggests that
mix.there would be no base salary and the role would
Another common consideration on pay mix is jobbe paid 100% on incentives. On the other side of
dimensions. This is where you can findthe range, if the average is 100%, the tool
differentiation between business developers,suggests that there should be paid solely on base
account managers and territory sales reps forsalary with no incentive pay.
example. I use a tool to help my clients to findI spent 11 years in the industrial gas business
another data point that gets closer to selecting(oxygen, nitrogen and argon) 15 years ago. I have
the right pay mix for the right sales role.a recent industrial gas client, and I filled out this
The first column is job dimensions for a specifictool based on my previous experience. It showed
sales role. The next column shows a range ofan average of 65% which is a pay mix of 65/35.
ratings from 0 to 10. The last column is the ratingWhen I reviewed their actual pay mix, it was 63
in terms of a percentage out of 10. The first37. Oftentimes, this tool can approximate reality.
dimension is the focus of the role. If the role is