Sales Training Article: Are you overpaying your top performers?
Sales Training Article: Sales Compensation - Are You Overpaying Your Top Performers?
Originally published by Ryan Tognazzini, Sales Benchmark Index (SBI)
This article was published by Sales Benchmark Index and discusses what to do if your sales compensation model is potentially overpaying your top performers.
If your sales compensation models are overpaying for poor performance in your sales organization, there is hope for you this year. In a recent post, I wrote about the difference between commissions and bonuses. Today’s discussion focuses on how to approach a commission-based plan to reward your best people.
We work with a number of our clients to redesign their sales incentive plans. What we’ve found is that companies often pay commissions too early, resulting in overpayment to ‘C’ players. This exhausts the variable sales compensation budget and leaves little for top performers. If you lose your best reps because they can make more money elsewhere, you can kiss this year’s goal goodbye.
Take the two examples below. Each rep has a $100K base, $100K incentive and $1M target: A 20% cost of revenue (CoR) at plan. Look more closely at the yellow shaded boxes.
In figure 1, the first $500K in annual revenue costs the company 30%, including salary. If that individual fails to perform beyond 50% of the goal, the company is saddled with a high cost of sales for below average performance. Not to mention, the rep made $150K for batting below average. Want to keep your ‘C’ players happy? Mission accomplished.
Now look at figure 2. Here, the rep has to meet at least 50% of the annual quota before earning commissions. This cuts the cost of sales down to 20% for salary only.
The impact? Click here to read the rest of the article
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