A competitive compensation structure is critical to the success of a growing business, but it’s often a difficult area for management to get right. Finding a structure that will motivate sales reps to perform at a high level, but not cut too far into profits is a difficult balance to achieve.
There are three components that are essential in creating a competitive compensation structure. Implementing these three components to create your compensation plan will not only help your sales reps achieve success, but it will also help you improve your bottom line.
1. Competitive Base Salary
The first key element in a compensation plan is a competitive base salary. The exact amount will vary based on the sales rep’s experience level, the location of the position, and the industry. The salary should be low enough to create sufficient incentive and motivation to earn more, but also high enough that it is considered competitive.
A competitive base salary will also attract top performers and top talent to the position. To determine a competitive base salary, review salary data sites like salary.com and find rates for similar positions in similar industries. Another option is to reach out to a compensation consultant that can help you with setting up a strong model. Remember, you are competing with other companies for top talent and need to offer a competitive package.
2. Commission Plan
In addition to a base salary, a competitive compensation structure should also include a commission plan that can double income when hitting goals. Most companies use a percentage of top line sales for their commission because it’s easy to monitor and understand.
When it comes to commission plans, a simpler plan is better and will help communicate and build energy within the team. Also, it’s best to have a commission plan that is uncapped. This means that the rep can continue to grow income if they grow the business without having a ceiling on their potential.
3. Accelerators
Once you have your base salary and commission plan in place, the next step is to include an accelerator. An accelerator allows the sales rep to get a higher percentage per deal closure after they’re closing deals beyond their quota and will only kick in only after the sales rep meets quota. Accelerators go a step beyond commission plans and really provide an incentive for the rep to reach new levels.
Although specific sales position, industries, and geographies may require you to vary your compensation structure, these three components serve as the backbone of every competitive compensation structure. Once you have your compensation plan in place, you’ll be putting your sales reps on a clear path to success.
What does your compensation structure look like?
