Sales is an inherently uncertain space. Companies have good and bad years; sales reps meet and miss quotas, and the broader economy goes through booms and busts. As a result, it can take a lot of work to create comp plans that motivate sales reps and reward hard work. Overwhelmed by the complexity, most companies kick compensation plans down the priority list or pick a plan that doesn’t reflect their goals or their reps’ contributions.
The impact? A recent survey by Graham Collins and AJ Bruno from QuotaPath revealed that 90% of sales reps don’t trust their comp structure, and 44% aren’t motivated by their plans. This is a significant problem since 86% of reps rank comp plans as their highest priority when hunting for a job.
“Compensation drives revenue and helps companies retain top talent,” says Collins, the Chief of Staff at Quotapath. “It’s an incredibly important thing to get right.”
Collins should know. He’s made a career of helping companies nail their comp plans, logging over 200 hours of reviewing over 400 plans in the last few years alone. To get an even clearer picture of comp plan trends—both pros and cons—Collins and Bruno surveyed over 300 people on sales rep attitudes and company approaches towards comp plans. They presented their findings and suggestions in a recent webinar for Pavilion.
If you’re a sales leader looking to develop a solid compensation plan for your employees, or a sales rep looking for good information when searching for a job, look no further. Below are takeaways Collins and Bruno recommend creating a fair, simple, and actionable comp plan.
The ideal compensation plan mixes stability—a base salary keyed to OTE—and quota-based earnings and accelerators. According to QuotaPath’s survey, the average comp plan offers 50/50 salary, with quotas based on an ARR of 4-7 times your expected earnings and quarterly evaluations. Companies can play with this template to match their situations—for example, offering slightly more or less salary based on the company’s financial situation or what motivates reps. But this basic plan represents the industry standard, and deviating from it should be done deliberately and with clear rationale.
QuotaPath’s survey showed 86% of companies offering standardized comp plans—where every person in the same role has the same plan. This not only motivates reps but also reduces bias and pay inequities. When it comes to comp plans, “it’s all about visibility across the board,” says Bruno, “which is the best practice for small and big companies.” When companies pick a fair plan and standardize it by role, reps have greater confidence that their specific plans are fair and that they’re fair relative to everyone else’s—creating more team unity.
Choosing the right quota-to-OTE ratio is essential—not just for motivating reps but for creating a sustainable business model. But right now, Collins says most companies’ OTE structures are broken. In the heady times after the first pandemic wave lifted, many companies scrapped traditional quota growth models and began to hire at all costs, opting for dangerously low quota-to-OTE ratios. But this was based on short-term thinking that didn’t prioritize the company’s growth or financial stability for reps. “Low OTE is not long-term sustainable,” says Collins. “These companies saw turnover because you can’t grow like that.”
When building comp plans, Collins says, “the more departments you involve, the more people trust the plan.” Different departments have different strengths—with finance bringing a conservative stability mindset and RevOps bringing direct knowledge of the sales situation and growth goals. In QuotaPath’s recent survey, reps had the most confidence in comp plans designed by sales leadership—but they also had the least confidence in these plans when they failed. Bringing everyone to the table can be unwieldy, but it’s usually worth it, allowing the strengths of one department to balance out the weaknesses of the others and vice versa. Involving reps in the planning helps them feel heard and invested—and gives them insight into changes the company might need to make.
It might feel daunting to create a comp plan from scratch—especially with all the factors involved. Luckily, you don’t have to. Collins and Bruno have used years of comp planning knowledge to create a free, easy-to-use Compensation Hub. The Hub lays out the fifteen most common compensation strategies and allows companies to compare, modify, and share plans tailored to their specific situations and needs. QuotaPath’s Compensation Hub allows you to find the sweet spot between salary and quotas and adjust your plan to meet your company’s evolving goals and needs.
CTA: Want to learn more about creating a great compensation plan? Watch Pavilion’s webinar with QuotaPath (pw: h12Pk8?4) and check out the Compensation Hub.