Your NET Worth – How to Assess you Compensation Prospects for the Rest or the Year and Beyond

If After a disastrous 2009 sales compensation made a comeback in 2010, and this year’s expectations are better still.  Hold on, though.  There are caveats: Sales position, industry, and performance matter when you’re talking about compensation increases.  Smart reps will have to be like running backs: pick an opening and blow through to score a financial gain.

Outside of professional sports and entertainment, salespeople, more than any other professionals, write their own paychecks with performance.  A 2010 WorldatWork survey of more than 500 companies found that salespeople and first-line sales managers continue to receive from 29 to 42 percent of their compensation in variable pay.  This performance-based compensation is most important for new-account salespeople.  The most common performance metrics are now revenue, gross profit, and reaching specific sales objectives.

Being in technical sales is no guarantee of a high income.  The bottom 10 percent of technical salespeople make little more than $36,000 a year.  Nontechnical sales comp is even lower: about $27,000 per year.

Sales managers do best in apparel and securities markets and in northeastern states such as New York and Pennsylvania.  Sales engineers reap the most handsome rewards in contracting and nonresidential construction and in places as far apart as Rhode Island, Utah, Nebraska, and Massachusetts.

Telemarketers are the least paid of business-to-business salespeople, but 10 percent make more than $40,000 a year – not bad for people in or out of sales.  And telemarketers can do very well if they are in the right spots.  Telemarketers in metals, minerals, and electronics do considerably better that average: they make about as much as the average sales rep.  Overall, telemarketers appear to do best along the eastern seaboard, from Washington, DC, up to the Boston area.  But telemarketers in less-favored fields and locations do considerably worse: The bottom 10 percent make barley $16,000 a year.

BE a Leader

So prospective earnings vary widely, by position, industry, market, and above all, by how well the job is done.  But there is more to compensation than just base pay and commissions.  The penalty for not being at the top of your game is heavy.  The bottom 10 percent of account executive earns less than half as much as the industry leaders, even when the value of benefits is included.  Senior account executive pay an even stiffer penalty for poor or mediocre performance, while business-development managers suffer a bit less but still see a big drop in total comp.

Experienced call-center staff and inside salespeople make half to one-third as much as senior executives but still do pretty well if they are at the top of their profession.  Senior call-center reps can earn about $75,000 a year if they are really good at what they do, which is not much different from the take-home pay of a below-average field salesperson.  And the top 25 percent of inside reps earn more than $60,000 per year.

Senior sales reps can pull in more than $130,000 in total compensation if they are in the top 10 percent.  This level covers all industries and geographic markets.  Those struggling at the bottom make about half as much.  District managers clear more than $150,000 annually if they are true leaders and about half as much if they are at the bottom of the pack.

The highest rewards are usually earned at the top.  The best chief sales officers make nearly $500,000 a year when benefits are included.  Even the bottom 20 percent, who usually work for smaller companies, gross more than $170,000 a year.  Giant corporations generally pay top sales executives better, because these execs have more people to manager.  But company size alone does not affect individual compensation, accounting to David Cichelli, senior vice president of The Alexander Group.  If you are a sales rep. what you do, not how big a company you work for, matters most.

What COUNTS

Aon Hewitt’s 2010 survey of 109 companies employing 59,000 salespeople gives a peek into what matters most.  The survey found that reps who combine “hunting” with “farming” average 10 percent more in pay than those who purely “farm.”  Hunters make little, but not much more, than those who combine both types of selling.

Deal size counts.  Salespeople who sell to medium-size, large, or global businesses make 16 percent more than reps who sell to small businesses.  Outside of the small-business niche, the size of firms in your segment does not matter much.

Experience counts.  People who have a developed sales career earn 18 percent more than junior reps just entering the field.  Highly experienced senior salespeople with long-time relationships earn another 16 percent on top of that 18 percent.

Possibly reflecting deal size, product salespeople average 21 percent more than those who sell just services, according to Aon Hewitt.  The more complex the sale, the more rewarding it will be.  Selling high-complexity products earns salespeople a whopping 31 percent more than selling less-complex products.

And if you company uses the team approach to sell to major accounts, it pays to be a leader.  The managers of selling teams average 17 percent more than other team members.

Least surprising, salespeople whose departure would pose risks to their companies make 17 percent more than their less essential colleagues.  Their carefully built relationships with high-value customers count a great deal at salary negotiation time.

EMPHASIS on Performance

That is roughly how things stood at the end of 2010.  This year is shaping up to be a better year, but not an easier one.  In fact, while the potential rewards will likely be higher, earning these rewards is going to get even tougher.  Companies want to pay sales reps more but only for revenue, profit, and results, not for just being onboard.

Most of the increase in cash compensation in 2011 will be in performance-based comp, predicts Robert Bentley, senior consultant with Aon Hewitt.  At least some firms will try to reduce sales comp as a percentage of revenue.  To avoid losing proven sales performers, many firms will focus more on such long-term incentives as deferred cash on top of normal performance incentives.

Steve Grossman, leader of sales effectiveness consulting for Mercer, expects an increase in cash compensation in 2011, with most of this increase in variable pay.  “No one wants to catch up with base pay, even if the last few years have been lousy, but they want to give people an opportunity to catch up.  It’s not a gimme.”

Grossman sees more emphasis on profit metrics for determining performance comp.  “Some companies are shying away from management by objectives and moving back to revenue, profits, and units.”

Michael Vaccaro, leader of sales force effectiveness for Deloitte Consulting, sees three broad issues in sales comp this year: “First, companies want to see more teamwork because they want to go to market in more complex ways.”  That means coordinating the efforts of several salespeople.  He explains, “I think you will see some shift toward team incentives, even though it is still a fuzzy concept and must be proven out.”

The second issue: dealing with the unpredictability of revenue in the coming year.  Having set modest quotas, companies may find reps reaping windfalls due to the economy, not their own efforts.  To avoid overpayment, many firms will focus more on rewarding for profit margins and building long-term relationships.

Staying PUT?

The third issue is retention.  “Companies did not worry much about retaining top performers in the recession, because they weren’t going anywhere,” says Vaccaro.  Now they might.  Vaccaro sees more emphasis on long-term incentives, such as deferred payments over three to five years.

For the first time ever, 2010 saw target cash compensation go flat in the high-tech sector, notes Jerry Colletti-Fiss.  Companies are reconsidering the competitiveness of their compensation plans, especially for high performers.  But firms that increased base salaries are also asking what they got for the increase.

Colletti sees more and more firms focusing on profit metrics: “There used to be fewer firms rewarding for profit, and it was a squishy measure.”  More than 40 percent of firms surveyed by WorldatWork will tie sales comp closer to profits in 2011.

Quota setting has been a chronic problem in the sputtering economy.  Many firms switched away from annual to semiannual or quarterly quotas, and Colletti thinks that shift will continue.  Other companies gave up on forward-looking quotas and simply set goals based on prior-year performance.  Colletti thinks that is a bad idea and that firms should exploit all those expensive CRM systems and databases to set quotas as accurately as possible.

One common question is whether to stabilize sales costs as a percent of revenue or as an absolute amount, which would mean reducing it as a percent when revenue grows.  The implication of that is that sales productivity must go up, mostly for the middle 60 percent of salespeople,” Colletti notes.  “The opportunity is there for higher earnings in 2011, but salespeople will have to work harder,” he summarizes.

Paul Dorf, managing director of Compensation Resources, Inc. sees two long-term trends continuing as the economy recovers: 1) Firms increasingly tend to pay performance-based compensation only when revenue is received, not when invoices are sent out, and 2) more performance comp is paid in tiers, with higher rates paid on higher levels of sales, which can strongly motivate top performers.

Dorf says 2010 was a much better year for average sales compensation because sales were up and only the better reps were kept.  Some firms that raised base pay to keep people on board might want to cut it now.  But this is risky, as reps will see this as a takeaway, unless they are very confident of performing well.  Dorf estimates that total sales budgets will rise about another 1 percent in 2011.