Donya Rose was interviewed by Alex Adamson on behalf of Bowery Capital. In this 30 minute podcast, Donya walks us through the do’s and don’ts of building rewarding and sustainable sales compensation plans for SaaS businesses.
Click through here to listen to the podcast on the Bowery Capital website, and check out other episodes related to sales compensation and sales management, or listen right here by clicking on the play button below, or scroll down to read Alex’s summary.
Donya begins by breaking down the 2 basic principles for having a well-structured compensation plan: motivation and focus. She explains that compensation plans can often be an arms race, especially if you try to match survey data that can be found on Glassdoor or other sites because the numbers are inflated. Instead, she recommends that companies analyze their own metrics and set realistic goals based on what their current team is hitting. She then goes on to explain the importance of “Right Pay Level” and “Right Pay Mix,” meaning the way that you split compensation between base and commission (OTE). She emphasizes the importance of having only a few measures make up someone’s OTE (she warns against having more than 3 and explains that having only 1 measure is truly ideal.) She goes on to explain that with a typical SaaS model for new business closers (Account Executives or Enterprise Account Executives) who are on a 50/50 split (50% base, 50% OTE) plan, your truly outstanding reps should be earning 2-3X the target incentive, creating a genuinely rewarding plan for those who overachieve.
In the spirit of creating meaningful upside, we then discuss the importance of creating uncapped commission plans. Donya explains that she does advocate for appropriate controls for “runaway payments” and gives a few examples of the best ways to approach building a plan like this and explains her model for “Deceleration Over Excellence,” a concept that was new to us here at Bowery. She encourages founders or hiring managers to truly incentive their reps by putting as “juicy a rate” right over quota as possible to incentivize reps to overachieve but then describes a maintainable model for achievement over 150% to goal.
We also dive into building compensation plans for first sales hires when there is limited data at the founder’s disposal and the different metrics that need to be monitored to ensure a reliable model. Donya highlights that even with a flat line compensation plan (meaning there is a flat percentage payout no matter the size of the deal or attainment to quota) it’s imperative to have a change in the compensation structure once a rep hits quota, otherwise the quota itself becomes irrelevant. Donya finishes by explaining that the deal cycle and contract length are two other vital factors when considering a compensation plan and payout structure. We also touch on the cadence and best practices for updating and changing compensation plans.