Most HR departments are highly proficient at market pricing standard roles. However, when those same “best practices” are applied to sales compensation, they often lead to plans that fail to attract top talent or correctly balance risk and reward for their selling roles. If you are market pricing your sales organization, avoid these two common pitfalls that look good on a spreadsheet but fail in the real world.
1. The Base Salary Trap
In a typical corporate role, the base salary is the compensation. In sales, the base salary is merely the “floor.” The common mistake is focusing the benchmarking effort on the base pay and then “bolting on” a commission structure based on what’s left in the budget. This is backward. To price a sales job correctly, you must lead with Total Cash Compensation.
Once you understand the total market value for the role, the split between base and variable (the “Pay Mix”) should not be dictated by what other companies are doing. Instead, it should be a function of Role Prominence:
High Prominence: If the salesperson is the primary driver of the sale (e.g., hunting new logos, short cycles), the variable component should be higher.
Low Prominence: If the product “sells itself” or the rep is managing a long-term, stable account with high renewal certainty, the base should be higher.
Market price the total value, then design the mix to fit your specific selling roles.
2. Target Total Cash vs. Actual Total Cash
This is where many surveys, and most HR teams, miss the mark. Target Total Cash (TTC, or On-Target Earnings – OTE) is a hope, and possibly “bait” for prospective hires; Actual Total Cash (ATC) is the reality.
Many companies have a habit of communicating “eye-candy” target compensation numbers that fewer than 50% of their sales force actually achieve. If you benchmark your roles against other companies’ targets, you are benchmarking against their aspirations, not their payouts.
A salesperson considering a move isn’t just looking at what they could earn “on target”; they are evaluating what they are likely to earn based on the opportunities in their territory or assignment and the product-market fit.
The Litmus Test: If your targets are set so high that only your “unicorns” hit them, your “market-competitive” plan is actually underpaying the market. And if the great majority of your sellers are earning well above target, then you aren’t “owning” the real earning opportunity you are offering.
The Better Measure: Whenever possible, look for data on Actual Total Cash. It tells you what the market is actually paying to keep talent in their seats. Ideally you are setting your target to match market actual, and your median total cash paid is close to market actual.
The Bottom Line
If you focus too heavily on market base salary levels, you risk creating a pay mix that fails to reflect the actual prominence of your selling roles given key characteristics of your business like degree of penetration, breadth of offering, and sales cycle length. Furthermore, by relying on target compensation instead of actual pay delivered, you may end up with a plan that looks aligned on a spreadsheet but is disconnected from what it takes to compete for talent in the real world.