I recently met with the head of rewards for a startup technology firm. She's helping structure the compensation package for the company's first salesperson — a key step in the process of building the company's sales organization. The company is in a relatively new industry, one for which few, if any, sales compensation norms exist. Through the hour-long conversation, we spent about 15 minutes discussing compensation design, and the remainder of the call on strategy, culture and alignment. Some leaders get impatient when they ask me about sales compensation practices. I respond with a set of questions around how they plan to grow the business. But they want answers, not questions.
I'm trying to understand the business environment and strategic priorities, and avoid the knee-jerk response: "It depends." When a company is focusing on its first commercial hire, I want to hear leadership's perspective on the type of person who is likely to be successful and how the company plans to enable this person's success. And let's not forget about the success of those who follow.
Top Drivers of a High-Performing Sales OrganizationThere are two common approaches I observe when companies are rebuilding or reorganizing their sales organization, and often, companies use both approaches at the same time. One approach is to grow the sales organization from the sales leader who will recruit members from his/her former team into the organization. Another strategy is to offer the candidate(s) a ton of upside pay.Â
Leadership and compensation professionals can have a significant impact when building a high-performance sales culture. Our research finds that senior leadership has the highest relative impact on culture among all employees. Compensation is also on the short list of influential factors, and the mix and magnitude of guaranteed versus variable pay helps define the company's strategic priorities and risk profile.
Leveraging a sales leader's network can be an effective and sensible recruiting approach, but doing so does not ensure the salesperson's long-term success in the role. Sales leaders have a relatively high failure rate; the average tenure is less than two years. What does this say for the longer-term viability of the leader's followers?
Using a highly-leveraged compensation approach, one with a relatively high share of the target or expected variable total cash compensation, is risky for both the candidate and the company. Candidates drawn to a high-risk compensation approach are more likely to take risks in pursuit of their target pay. Such risky behavior can be inappropriate in some industries like biopharma and medical devices. It can also be out of line with company culture.
While leadership and compensation are arguably the most important drivers of performance for a sales organization, there are several other factors that contribute to building a high-performing culture, including:
Every company has a unique opportunity when launching a new sales function or revamping the current function. Rather than focusing first on the compensation plan, leadership should consider a broad range of factors that have the biggest impact in building a high-performance sales organization. The first place to start is to define your organization's culture and values, then create the building blocks to support that culture. Compensation is a crucial component of this equation, but one that relies on many other influences. Â
About the Author
Scott Barton is associate partner and co-leader of the sales compensation practice at Radford. Radford is part of the Talent, Rewards & Performance practice at Aon Plc.
Read the September edition of Sales Compensation Focus.
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