Pay Equity and Sales Compensation…Taking a Deeper Look

Most companies are keen to ensure pay equity among job incumbents.

Pay equity—earnings parity—between men and women seems like a non-issue for sales compensation eligible sellers. Regardless of gender, sales results produce unambiguous earnings outcomes. Or, do they?

The majority of sales functions offer unencumbered sales compensation earnings prospects to all sellers, regardless of gender. The playing field is level. Sales leaders point to their performance platform designed to reward sellers for measurable outcomes; a true pay-for-performance model. It’s difficult to infer that the sales pay program is anything but gender-neutral. However, a deeper look may reveal hidden, unconscious practices that harbor unintended biases.

What to Test

Sales compensation managers and sales leaders can test the sales compensation program as a neutral arbiter of pay outcomes. A pay audit should employ these fact-based tests to discover any pay disparity.

• Total Earnings Test. The most obvious pay parity test is to compare the total earnings of the same job incumbents. By comparing the total earnings between men and women, you will quickly see any variance in the two populations. Now examine the total earnings’ decile populations: 10th, 25th, 50th, 75th and 90th percentiles. Do you notice any variance in total pay between female and male job incumbents, at each decile? A two-line graph representing males and females by decile will provide a clear picture.
• Pay Component Test. Next conduct the same earnings test on each pay component: base pay, incentive earnings, contest winners and recognition award recipients. Each component has its own dynamics and may be cloaking outcome variances.
• Pay Progression Test. Examine pay progression (time in job, by year) for each pay element, including total earnings, and then for each individual pay component (base, incentive, contests and recognition awards). Are the two populations moving at the same rate over time? Does one gender’s earnings increase at a faster rate than the other group? Test the deciles, too.
• Turnover Test. What about turnover? Are the turnover rates similar or dissimilar? Test turnover by years of service. Do your management practices adversely affect any protected class causing turnover to be higher than the general population?
• Total Population Test. Often criticized as an unreasonable apples-and-oranges comparison, a total population average earnings test provides added insights. Job-centric pay equity adherents argue that companies need to conduct comparisons of gender pay amounts at the job level: equal pay for equal work. Job-centric adherents argue that comparisons across job families are irrational. However, leadership can learn a lot about pay practices and employment decisions by doing a total sales force population test (including managers) comparing average male pay and average female pay. Is there a variance? Is there an explanation for that variance?

If some or all of these tests reveal pay difference, it’s time to investigate sales department practices. While the variance may be the result of simple job performance, further investigation should proceed.

What to Investigate

The sales department operates a number of employment and incentive-plan dependent programs. If pay variance is evident, management should assess these programs to ensure their neutral application and outcome.

• Staffing and Job Assignments. While a well-known company policy: recruiting and staffing practices are gender-neutral. This also means pay levels, pay increases and job assignments—who gets assigned to which jobs—strategic account manager, account manager, territory representative and inside sales representative. Over- or under-gender representation in a job may reflect a hiring bias. This is also true for promotions. Examining time-lapse job promotions will confirm or refute promotion bias.
• Territory Configuration and Account Assignments. Within each job, such as geographic territory representative or named account manager, actual customer assignments influence pay potential. Meanwhile, these same practices continue when companies reassign territories or accounts for more effective coverage purposes. Are there any discernible gender-based outcomes?
• Quotas. Like territory configuration and account assignments, quota allocation and mid-year quota adjustments influence pay outcomes. So do sales credit splits. Does one group fare better than the other?

Next Steps

Use these suggested steps to investigate sales force sales pay equity practices:

• Step No. 1: Confirm senior leadership’s commitment to equitable pay. Meet with the leadership team to confirm pay equity policies for sellers. Illustrate what pay equity for sellers implies. Next, secure concurrence with sales leadership.
• Step No. 2: Conduct Detailed Analysis of Pay Outcomes. Test the pay outcomes to identify variance from neutral treatment.
• Step No. 3: Investigate staffing, job assignments, account assignments and quota practices. Look for practices that may adversely affect the earnings potential of a group.
• Step No. 4: Conduct regular pay equity audits. Make the data visible. On an annual basis, prepare a report of findings. Share with leadership.
• Step No. 5: Establish corrective protocols when biases or variances are evident. Have a game plan to address disparate pay equity outcomes. Document the preferred approach. Address undesirable pay equity issues promptly. Note: Efforts to correct pay equity should not alter performance expectations for one group versus another.

Summary

Sales compensation practices may compare more favorably to other types of pay systems for its unbiased pay treatment of employees. However, the presumption of pay equity needs confirmation by testing pay data and investigating pay policies, practices and programs.

David Cichelli is a revenue growth advisor for the Alexander Group. Connect with him on LinkedIn.