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Should base pay for sales people be the same for everyone in the role, or should there be a range?

Posted on November 18, 2009 by Donya Rose

Not managing base is a relatively common practice.. It’s not a best practice in my opinion, but it’s not unusual. There’s a philosophy that says

• Make your own raise – sell more
• We like to keep our fixed cost (base) low and don’t mind if people are paid well as long as they have produced (higher risk, upside).

I would say that you should manage your base (+/- 20% of a range midpoint) if you can clearly articulate what you are paying for in the base, and what you are paying for in the variable pay. A good starting place would be…

Base pay is for

Experience

Potential (expected long-term value to the company)

Leadership

Skills.

Variable pay is for contributions to company success this year, ideally directly affecting the income statement.

If you don’t have a solid performance management system, you may find that latitude in base pay levels will result in not-best-practice practices. Some I have seen include…

• Base pay raises to underperformers to “keep them whole,” sometimes (and you can’t make this stuff up) accompanied by low/no raises to top performers because they already got their money via the variable pay plan
• Everyone at the top of the range – so no differentiation in base
• New hires coming in at a higher base, because that’s what it takes to get them in the door, so that green and less skilled sales people have the highest base pay levels.

All of this is to say that there are potential pitfalls of managing base within a range, and if you aren’t ready to support it with solid performance management, put that foundation in first. But once you do have that in place, you will find that managing base pay within ranges has these advantages:

• You have a way to differentiate pay for people who are highly valuable that does not rely on this year’s sales results
• You can manage your base pay ranges so that they increase over time, along with the variable piece (if you don’t do this, you will end up with a pay mix that is inappropriately incentive-rich because variable will grow while base stays the same)
• If you do decide to change your pay mix to be less incentive-rich (which would be the typical change as a company matures over the years), you will be able to directly control the base pay levels and ranges so that you can do this gradually over time.