- Blog post
How much does sales compensation matter?
As a sales manager, you try hard to excel. You provide timely training for your people, you make sure they have the tools they need, you motivate them with demanding but realistic goals, and you do your best to coach them through sales slumps.
Having done all that, surely you’ve earned maximum esteem from your sales force. Or, perhaps, not.
Research from sales trainer and author Steve W. Martin indicates there’s another variable that weighs heavily on salespeople’s minds when they rate their managers: You guessed it, compensation.
Now, you might argue that this isn’t entirely fair. After all, your organization’s compensation plan most likely isn’t entirely up to to you. If you’re like most companies, the C-suite probably has a big say.
But nonetheless, there it is. When salespeople make a judgment about you, the level of excellence they assign to you is largely a function of whether they feel you’re paying them what they’re worth, or not.
Martin did a survey of nearly 800 sales professionals ranging from the VP-Sales level down to the front-line sales rep. Here are some of his findings:
- When asked how they rated their sales leadership, 38% of respondents whose organization paid above-market compensation said leadership was excellent. On the other hand, only 2% of those in organizations paying below-market said they had excellent leadership. For organizations paying around the average for the market, the excellence rating was around 20%.
- At the other end of the scale, within organizations paying below-market compensation, 22% of survey respondents said their sales leadership was below average. Only 4% of respondents in these organizations said their leadership was excellent.
- The trend was similar for ratings of above-average and average. In both cases, respondents from organizations paying at or above market rates were more likely to give stronger ratings than other respondents. For instance, 35% of respondents in above-market-compensation organizations thought their leadership was above average, while almost 50% of those in average-compensation organizations also thought so.
What to do?
But what’s a sales manager to do with this somewhat sobering knowledge? Give up trying to do your best, on the theory that pay is all that matters?
Of course not. Compensation isn’t the only determinant of excellence in the eyes of rank-and-file salespeople. They still see what you do to lead, inspire and help them, even if they wish they earned more.
What you can do with this knowledge, is bolster the arguments that you no doubt already make within the organization for competitive compensation for your sales force.
In fact, the Martin research contains a couple more compelling nuggets to help you make the case for generous compensation:
- Of the sales leaders (as opposed to rank-and-file salespeople) surveyed, 60% of those working for companies that paid below-average sales compensation said revenue had increased in the previous year. Some 40% reported flat or declining revenue. But within companies paying above market rates, 73% reported higher revenue, with just 27% flat or declining.
- Moreover, there was a clear link between sales morale and compensation. Sixty-seven percent of sales leaders in above-market-compensation organizations rated their sales force’s morale as higher than average; only 20% of leaders in below-market organizations said the same.
A final note
Salespeople are driven, at least in part, by compensation, and compensation is always a financial concern for the organization. With such clashing imperatives, compensation will always be a hot-button issue. But if you can help top leadership recognize how strongly compensation colors your reps’ opinions about the organization, their morale, and, most important of all, their performance, you’ll be doing everyone a favor.