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Sales strategies, markets, channels, and technologies have transformed, but often, sales team compensation programs mirror those deployed decades ago. For many companies, it’s high time to thoroughly review quotas and commissions to match sales roles augmented by AI, maximise new efficiencies, and be a stand-out employer in the battle for top talent.
The latest WorldatWork study of 300 sales compensation leaders suggests company revenues are expected to rise. Two-thirds of businesses plan to increase sales headcount in 2024, the largest increase since 2019. Fewer companies are expecting to reduce headcounts, and many plan to spend more on sales compensation costs, which are expected to grow by over 5% in 2024.
According to WorldatWork, 91% of leaders are updating compensation plans in 2024 with a focus on pay-for-performance and alignment with go-to-market (GTM) strategies. The key goals for leaders are to focus more on profitability, achieve a sales strategy shift, and facilitate the launch of new products or solutions. Leaders aspire to fix outdated and ineffective compensation design elements, shift product/solution mixes, and even accommodate more extensive reorganisations of their sales divisions.
An HBR article penned by GTM experts Sangram Vajre and Lindsay Cordell says:
“Too many companies still oversimplify by assigning quotas and commissions based solely on what segment (enterprise, mid-market, SMB) a seller is pitching. This traditional approach results in overpaying some salespeople and underpaying others.”
Compensation plans don’t account for specific GTM tactics, which may require different skills and compensation. They also don’t accommodate a company's maturity. Those in the ideation phase must prove their product, whereas established companies can leverage multiple products, repeat business, and referrals.
Vajre and Cordell say problems that indicate a review is necessary can include:
A compensation review will not be without challenges. It’s critical to create a program that drives higher productivity, but the adoption of AI and automation may provide the perfect opportunity to recreate sales team responsibilities and KPIs and examine how salespeople spend their time. New goals must stretch team members to significant performance but also be achievable and truly motivating. Of course, costs are a critical consideration.
Leaders will also want to ensure they have effective compensation program management processes in place, including monitoring results and calculating quotas and payouts, that they have considered external factors and threats, and are competitive within the talent marketplace.
Businesses face considerable pressure to generate revenue, achieve growth, and maximise sales team ROI, but with sales roles changing with AI and the vast array of GTM channels available now, it could be a perfect time to craft a robust new compensation plan.
Vajre and Cordell recommend understanding GTM tactics to evolve segmentation past target-company size, set appropriate KPIs and compensation rates, and avoid overpaying or underpaying compensation.
If your business has significant inbound GTM flows then sales teams are more like “order takers” and should be process-orientated with strong communication skills. These team members may have a higher base salary but lower commission and overall compensation than strong, outgoing business development professionals.
If you’re going out to gain every lead and conversion, then your business will require a certain breed of salesperson who will need to be compensated accordingly. These people will be motivated by lower base salaries and high commissions and will require higher compensation to attract and retain them. These team members will be able to use data, align with marketing teams, and facilitate customer personalisation at scale.
Besides the definition between inbound and outbound GTM approaches, you may also be product-led, event-led, partner-led, or community-led. Each of these characteristics or tactics requires salespeople with certain skills and appropriate KPIs and compensation levels. For example, product-led growth needs team members who are experts in a product and field and able to build business use cases with potential clients. In contrast, partner-led strategies require detail-oriented relationship builders. Each sales strategy has its own constraints and timescales, the latter of which is vital to consider when building a compensation plan.
Your market maturity will also define the expectations for your sales teams and how you reward them. In the ideation phase, you may have to factor in results (and commissions) building over time. When your product is present in a market, your pipeline is more predictable. Mature companies may draw from multiple products and market segments for success.
A few ideas among many possibilities for effective compensation plans include linking business performance to rewards, succinctly driving individual accountability, and aligning pay to powers of persuasion. Compensation plans can differentiate between top-performing outliers and their more average-performing colleagues, incentivising outstanding salespeople to continue their work and motivating lower performers to step up.
If you follow an on-trend revenue operations (RevOps) strategy, you’ll want to firmly align sales team compensation with your process and technology and cross-team-driven revenue goals. The pace of both business and technological change creates an opportunity to review compensation at the same time as other disruptions and align multiple business outcomes. The intention is to drive teams with clear goals and roles and substantial motivation to propel your business forward.
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