1The Sales Compensation Conundrum

THE SALES COMPENSATION

CONUNDRUMHow Compensation Impacts Sales Organization Quality and Performance

Written & Researched by

Steve W. MartinSales Expert, HBR Contributor, and Author of the Heavy Hitter Sales Series

Nick HedgesPresident and CEO of Velocify

2The Sales Compensation Conundrum

Steve W. Martin is an expert on the human nature of complex sales. His “Heavy Hitter” series of books for senior salespeople has helped over 100,000 salespeople become top revenue producers. His new book is titled Heavy Hitter I.T. Sales Strategy: Competitive Insights from Interviews with 1,000+ Key Information Technology Decision Makers and Top Technology Salespeople. Steve is a regular contributor to the Harvard Business Review and teaches at the University of Southern California Marshall School of Business MBA Program. You can learn more about Steve at www.stevewmartin.com.

About Steve W. Martin

About the Authors

Nick Hedges is the president and CEO of Velocify and a 15 year veteran of the Internet and software as a service (SaaS) industry. Nick has spent the last seven years at Velocify helping organizations accelerate sales performance and is a widely-recognized thought leader with respect to technology’s transforming impact on the sales profession. Nick is also a regular contributor to Inc.com, where he writes a column called Sales Acceleration. For more on Nick, visit http://velocify.com/company/leadership/

About Nick Hedges

3The Sales Compensation Conundrum

Salespeople and sales leaders alike know that compensation can be a strong motivator, but it usually comes at a high budgetary cost. This leads many to ask what the real impact of compensation might be on overall sales professionals’ satisfaction and performance. This study explores the answer to that question.

Nearly 800 sales professionals participated in a sales organization performance study by completing an extensive 42-question survey. Participants were asked to share their opinions on their sales organization and

personal details on their company’s compensation. In exchange for their candor, it was agreed their names and organizations would remain anonymous.

Twenty-two percent of survey participants were top-level sales leaders, such as vice president of sales; 14 percent front-line sales managers, who manage salespeople; 17 peaent were hybrid sales managers, who sell directly to customers and manage other salespeople; and 47 percent were salespeople, who carry their own quota.

How Compensation Impacts Sales Organization Quality and Performance

Study Participants by Role

Quota-CarryingSalespeople47%

Top-LevelSales Leaders22%

Front-LineSales Leaders14%

HybridSales Leaders17%

4The Sales Compensation Conundrum

The industries represented in the survey in order by number of participant responses were financial services, high technology, business services, manufacturing/distribution, education, retail/hospitality, media/entertainment, healthcare, and energy/utilities.

Study participants were asked to describe their company’s market position. Twenty-one percent worked

for an industry leader with significant market share in their field, 32 percent for a well-known company within their market space, 29 percent for a lesser known company who has to compete against well-known rivals, and 18 percent for a relatively young company trying to establish market presence.

How Compensation Impacts Sales Organization Quality and Performance

What best describes your company?

A relatively young or unknown company trying to establish market presence

18% An industry leader withsignificant market share in our field

21%

A well-known company within our market space32%A lesser known company

who has to compete against well-known rivals

29%

5The Sales Compensation Conundrum

Top-level sales leaders and sales managers were asked to categorize their company’s compensation compared to other companies within their industry. Twenty-eight percent indicated their company’s compensation was higher than market average, 60

percent were at market average, and 12 percent were below average market average. Each category of compensation was then analyzed from a number of different perspectives to determine the impact of compensation on sales organization performance.

How Compensation Impacts Sales Organization Quality and Performance

$

Below Average Market Compensation

12%

Average Market Compensation

60%

Above AverageMarket Compensation

28%

Sales leaders, how does your company’s compensation compare to others within your industry?

6The Sales Compensation Conundrum

Seventy-three percent of sales leaders at companies that compensate above market level reported increased revenue from 2013 to 2014, compared to 60 percent of sales leaders that compensate below market level.

Conversely, 40 percent of sales leaders at companies that compensate below market level reported flat or decreased revenue, compared to 27 percent of sales leaders that compensate above market level.

Revenue Growth Tied to Compensation

Sales leaders, how did your company’s annual revenue last year compare to annual revenue the year before?

0%

Percentage of respondents

10% 30%20% 40% 50% 60% 70% 80% 90% 100%

Below AverageMarket Compensation

Above AverageMarket Compensation

60%

73%

40%

27%

Increased Revenues Flat or Declining Revenues

7The Sales Compensation Conundrum

Compensation Associated with Sales Organization Excellence

Forty percent of sales leaders at companies that compensate above average market average rated their sales organization as excellent compared to 16 percent at average compensation and 8 percent at below average market compensation companies. Conversely,

57 percent of sales leaders at companies that compensate below market rated their sales organization as average or below average compared to 34 percent at average compensation and only 16 percent at above average market compensation companies.

Sales leaders, how would you rate your sales organization?

0%

Percentage of responses

10% 30%20% 40% 50% 60%

Excellent SalesOrganization

Above AverageSales Organization

AverageSales Organization

Below AverageSales Organization

Above AverageMarket Compensation

Average Market Compensation

Below AverageMarket Compensation

8The Sales Compensation Conundrum

Perceived Quality of Sales Leadership Is Directly Related to Compensation

Thirty-eight percent of salespeople who sell for above market compensation companies rated their sales leadership as excellent compared to only 2 percent of salespeople at below average market compensation companies. Conversely 22 percent of salespeople at

below average market compensation companies rated their sales leadership as below average compared to only 4 percent of salespeople at above average market compensation companies.

How would you rate your sales leadership?

0%

Percentage of responses

10% 30%20% 40% 50% 60%

Excellent

Above Average

Average

Below Average

Above AverageMarket Compensation

Average Market Compensation

Below AverageMarket Compensation

9The Sales Compensation Conundrum

Sales Organization Morale Is Directly Tied to Compensation

Sixty-six percent of sales leaders at above average market compensation companies rated the morale across their sales organization as excellent compared to only 21 percent at below average market compensation

companies. Conversely, 27 percent of sales leaders at below average market compensation companies rated morale as below average compared to only 4 percent at above average market compensation companies.

Percentage of responses

0% 10% 30%20% 40% 50% 70%60%

Higher than mostorganizations

About the same asmost organizations

Sales leader, how would you rate the morale across your sales organization?

Lower than most organizationsAverage

Above AverageMarket Compensation

Average Market Compensation

Below AverageMarket Compensation

10The Sales Compensation Conundrum

Compensation Impacts Sales Organization Culture

Thirty-seven percent of sales leaders at above average market compensation companies described their sales organization as “a cohesive group of like-minded individuals” compared to only 23 percent at below average market compensation companies.

Conversely, 42 percent of sales leaders at below average market compensation companies described their sales organization as “a loose collection of individuals” compared to 23 percent of sales leaders at above average market compensation companies.

0%

Percentage of responses

5% 15%10% 20% 30% 45%40%25% 35%

A cohesive group oflike-minded people

A team of seasonedprofessionals

A loose collection of individuals

Sales leaders, what best describes the composition of your sales organization?

Above AverageMarket Compensation

Average Market Compensation

Below AverageMarket Compensation

11The Sales Compensation Conundrum

Companies Where Compensation Was Not Capped Reported Higher Quota Attainment Rates

Seventy-nine percent of sales managers reported achieving their annual quota last year at companies where compensation was not capped compared to 72 percent of sales leaders at companies where compensation was capped. Fifty-one percent of

salespeople achieved their annual sales quota at companies where compensation was not capped compared to 48 percent at companies where compensation was capped.

Is compensation capped at your company?

0%

Percentage of respondents

10% 30% 50% 70%20% 40% 60% 80%

Sales manager average quota attainment

Sales managers reporting the percentage of their salespeople who made quota

Not Capped Capped

12The Sales Compensation Conundrum

Companies Where Compensation Was Not Capped Reported Higher Quota Attainment Rates

When the impact of capping compensation is analyzed for all study participants, the results suggest

companies that achieved lower percentages of their revenue targets were more likely to cap compensation.

Revenue target attainment of companies that cap compensation

Percentage of revenue target attained

<50% 50%-79% 80%-99% 100%

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13The Sales Compensation Conundrum

Velocify is a market-leading provider of cloud-based intelligent sales software, designed for high-velocity sales environments. Velocify helps sales teams keep pace with the speed of opportunity and increase revenue by driving rapid lead response, increased selling discipline, improved productivity, and actionable selling insights. The company has helped more than 1,500 companies across a variety of industries improve customer acquisition practices and sales performance. Velocify was recently recognized as one of the fastest growing companies in North America by Deloitte and a Best Place to Work by the Los Angeles Business Journal. For more information, please visit velocify.com or follow the company on Twitter @Velocify.

Contact Sales: 888-843-1777 l sales@velocify.comSubscribe to our blog: velocify.com/blog

About Velocify

The study results substantiate that different sales force compensation strategies can greatly

impact the performance and quality of sales organizations. Decisions about whether to cap

compensation and whether to pay the sales force above market average, at market average, or

below market average can have a substantial effect on revenue growth, company excellence,

quality of sales leadership, morale, culture, and quota attainment.

Final Thoughts

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