We have two sales VPs with remarkably different team revenue quotas. One at $12MM/yr, the other at $20MM. To date we have targeted the same variable comp for each in part because it was competitive but also necessary to recruit the one with the $12MM quota . Should the VP with the higher quota have a higher target incentive?
When it comes to sales leadership roles, there is oftentimes dramatic variability in quota sizes without significant variability in compensation levels. While it may take more effort and skill to manage a larger quota, it’s also the case that in sales leadership lower quotas are often associated with market development and team construction requirements, which may actually take skills and initiative not required in the ongoing management of a well-penetrated region. One useful “test” here is to ask if the people were switched, would the quota change. Consider these questions:
- If Mr. $20M were to be assigned Ms. $12M’s team, would the $12M go up?
- Is Ms. $12M capable of doing Mr. $20M’s job?
- Does one of these jobs take more Skill, Experience, Leadership ability (SEL) than the other?
- Are these two people in different levels of leadership, or are there just different expectations based on what is expected from their sales team’s specific assignment?
If it’s the assignment, then there’s a strong argument to keep the target incentive the same. If it’s different levels of leadership, then both base and target incentive should likely be higher for Mr. $20M.
Regardless of your answers above, I would caution you against proceeding with any kind of commission concept for a sales leader. If you step away from market-based comp, you’re on a path to serious comp excess if/when the business scales. I could tell you stories of VPs of Sales earning $1.2M at target in $1B divisions of $15B companies that should know better. Then when they inevitably have to unwind it because market comp is $500k or so, it’s a real disaster for the sales leader, the sales team and the business.
Increase base to recognize superior persistent attributes IN the same job. Increase the base pay range, base pay and target incentive to recognize a higher level of the leader job. But stay away from any kind of % of sales concept for sales leaders.
Donya Rose, CSCP, is Managing Principal of The Cygnal Group. She is a recognized expert in sales compensation plan design, regularly speaking at conferences and writing published articles. She serves clients from F500 to growth-stage businesses, and advises WorldatWork on sales compensation hot topics and best practices.