Compensation Trend: Base Trumps Variable
Sales recruiters are experiencing first-hand a trend with sales compensation with new hires – the base pay is more critical than ever. The total on-target earnings (OTE) in offers are not meeting candidate demands of more security in a guaranteed salary.
Sales leaders feel the fallout from this trend beyond the recruiting challenges. Some seasoned reps now demand a hefty bump to their base over significant increases to the total OTE.
The reason is simple. Most sales organizations continue to get fewer reps to quota. Jeff Riseley, the founder of the Sales Health Alliance, published Are Sales Targets Actually Achievable on Friday and referenced a February LinkedIn poll where almost 700 sales pros voted:
- Only 20% said more than three-quarters of their team got to quota last year.
- A startling 29% shared less than a quarter of their sellers did.
So how can the entire sales community – rep and leader alike – rally together to revive variable pay?
Understand the numbers behind a fair quota
Reps should expect quotas around 6x base salary or 3x OTE dependent on product and market maturity, average deal size, and typical sales cycles. Quotas set any lower, and employers are most likely losing money.
Most companies factor in onboarding and ramp time in Year 1 and expect a breakeven or slight loss for new reps. Tenured reps might have targets at 8x base or 4x OTE to ensure the sales organization is a profit center.
The best sales organizations go beyond the number and show reps the formula for success. For an account executive with a base of $100,000 (and another $100,000 in variable pay), imagine a quota of $600,000. To hit her goal, she will need:
- $3,000,000 in pipeline
- 150 qualified opportunities
- 20% win rate
- $20,000 average deal size
Keep variable pay simple
A traditional 50/50 pay mix is preferred and accepted by most account executives. For commission, consider a tiered structure that unlocks a higher rate after crossing certain thresholds of booked revenue.
If that's too boring, motivate reps to source and close their own business. To do so, unlock the highest commission rate right away and pay by lead source.
No matter the pay mix or commission table, reps need to understand precisely their variable in the OTE. Anything complex, and we'll find our sellers spending too much time in commission spreadsheets and less time in sales meetings.
Share how many reps hit quota historically
If we don't, others will. RepVue collects ratings from thousands of reps and provides an overall score, how much top earners bring home by segment (SMB, Mid-Market, Enterprise), and what percentage of sellers hit quota. For example, 57% of reps hit quota at Adobe. Leave a rating here to see how you and your team stack up to others.
In such a tight labor market, sales leaders should be open about how many reps hit their annual goal last year. If the number is shockingly low, own up to it and share the plan to support sellers in 2022.
Consider sharing other historical trends with pipeline generation, win rates, and average deal cycle to win over candidates and current sellers. Hype other resources like sales enablement, sales operations, and sales development to give reps a 360-degree view of what's possible.