When designing a sales compensation plan it is important to consider differences between types of sales positions and the impact they have on influencing and closing sales.

The following article highlights variations in sales pay mix and issues to consider when deciding how much compensation to tie to cash incentives. It includes excerpts from our 2009 Culpepper Sales Compensation Design Survey on sales pay practices of technology and life sciences companies.

Pay Mix
An employee’s pay mix describes how different types of compensation are allocated. Pay mix and the types of cash compensation used can vary considerably by sales position.

Table 1 shows variations of different types of cash compensation that can comprise a sales employee’s total targeted cash compensation. Most sales employees in technology and life science organizations have a guaranteed base salary with the opportunity to earn bonuses or commissions.  

Sales cash incentive plans can include commissions and/or bonuses.

• Sales managers, sales reps, and product specialists are more likely to receive commissions than other types of sales positions. In general, commissions are most effective when paid to employees responsible for closing sales and to employees responsible for selling high-priced products or services.

• Bonuses, in lieu of commissions, are typically more effective when it is difficult to measure the impact individual employees have on sales. Examples include indirect sales, sales support, reps selling low-priced products, and reps selling through distributors.

It is rare for technology and life sciences organizations to have a commission-only sales compensation program with no base salary or bonus. By and large, straight-commission plans are ineffective and inappropriate for companies that need sales reps to sell products and services created and owned by the company. Straight-commission plans are more appropriate for sellers that work as independent agents and have ownership of their own accounts.

* In addition to a guaranteed base salary, guaranteed cash allowances for automobile and/or housing allowances are common for some sales positions, particularly in Europe and Asia.

The comprehensive version of this report provides detailed breakouts by number of employees, industry sector, ownership, and sales channel for the sales positions shown in Table 1.

Base Salary to Incentive Pay Mix
Base salary to incentive pay mix can vary considerably by type of sales position (Table 2). Employees closing sales and sales management typically have the most aggressive pay mixes, with a higher percentage of their compensation at risk than other sales positions.

• Direct sales reps selling to new accounts, on average, have the highest percentage of compensation tied to cash incentives (i.e., bonuses and/or commissions).

• Pre-sales technical and engineering jobs and business development have the lowest percentage of commission tied to cash incentives.

The comprehensive version of this report provides breakouts and base to incentive pay mix distributions by number of employees, industry sector, ownership, and sales channel for the sales positions shown in Table 2.

A higher incentive component should be considered when:

• The selling is focused on pursuing new accounts.

• The selling is primarily direct.

• The position requires a high degree of skill.

• The price of the product or service is relatively high.

• Internal career opportunities are limited.

 A lower incentive component is usually advised when:

• The selling is primarily indirect (to dealers and distributors).

• The selling is primarily a team effort.

• The company or product is in a start-up mode.

• The sales cycle is very long.

• Advertising is a strong factor in influencing sales.

• Internal career opportunities are relatively high.

• Free to participants in 2009 Culpepper Sales Compensation Design Practices Survey

• Free to subscribers of Culpepper Pay Practices & Policies Survey Package
  (includes Culpepper Survey Library and Small Company Plus subscribers)

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Data Source: Culpepper Sales Compensation Design Practices Survey of 276 organizations.

Survey Dates: May 5, 2009 through August 5, 2009

Breakdown by Industry Sector Group:
Technology 76%, Life Sciences 11%, Other 13%

Participant Breakdown by Number of Employees:
Up to 100: 25%, 101 to  500: 22%, 501 to 2,500: 28%, 2,501 to 10,000: 17% Over 10,000: 8%

Participant Breakdown by Ownership/Corporate Status:
Public 49%, Private 48%, Non-Profit 3%

Participant Breakdown by Primary Sales Channel:
Direct Sales 81%, Distributor/Wholesaler 7%, Government 4%, OEM 3%, Retailer 3%, VAR 2%

Participant Breakdown by Country:
United States 92%, Canada 3%, Other 5%