The short answer is: Well, kind of yes, and, kind of no. Hmmm, which is it? Yes or no?
Anecdotal logic would suggest the answer is “yes.” Car dealerships pay salespeople differently than software companies, food product companies and marine power plant companies. Most car sellers are “generally” paid alike, as are food product sellers and marine power plant sellers. These common-sense observations would support the answer, “yes,” sales compensation plans are industry specific. If this were true, it would be reassuring from a designer’s point of view. The designer’s task is simple: Benchmark industry practices and adopt the most common design, known as “prevalence of practice.” Easy-peasy.
However, every industry study of sales compensation design practices reveals something very different. Sales compensation practices vary widely within an industry. Often, companies that are direct competitors have significantly different sales compensation plans. Target pay is different. Pay mixes vary. Upside potential varies. Performance measures differ. Quota and sales crediting practices vary, too. In other words, sales leaders configure sales compensation solutions unique to their company’s sales model and do not necessarily follow industry practices.
So, do sales compensation plans vary by industry? The more nuanced answer is: “Yes,” they vary by industry, but this does not mean they are uniform within an industry.
Okay, where does that leave us? Let’s try solving this question.
Income producers are revenue partners with the “house.” Examples of income producers include real estate salespeople, financial advisors, annuity sellers, traders and manufacturers’ representatives. Meanwhile, companies with a unique product or service hire sales personnel to promote their products to buyers. These sellers are known as sales representatives. They “represent” the company’s value proposition to prospective customers.
But you are correct: The pay plans for producers are unique by industry segment and have a high degree of similarity among industry competitors. Producers, in a sense, are the product. Real estate salespeople tend to be paid alike. For producers, sales compensation plans are industry specific. However, this is not the case for sales representatives.
Sales representatives’ sales compensation plans can vary significantly among industry competitors for the following reasons.
Setting aside the producers, the answer is “no:” Sales compensation plans are not uniform within an industry for sales representatives. Instead they are unique because they align with company job design and management philosophy.
Fortunately, we are not lost. As sales compensation plan designers, we now have a well-articulated set of sales compensation building codes that accommodate unique sales representatives’ jobs and varied management philosophies. For example, sales jobs with high persuasion tend to have deeper pay mixes. Jobs that sell and renew major contracts are paid on both types of revenue: new and renewal. Jobs, where the salesperson has pricing flexibility, need to be measured on both revenue and price realization or some other profit measure. These and other building codes are consistent across industries, jobs and geographies.
Here is the final answer: Producer sales compensation plans differ by industry and have minor variance among industry competitors. However, sales compensation plans differ by industry for sales representative jobs, yet they share the same building codes for design purposes. While the plans are unique, they are consistent with sales compensation building codes.
2020 SALES COMPENSATION TRENDS SURVEY RESULTS PUBLISHED
More than 120 companies participated in the Alexander Group’s 2020 Sales Compensation Trends Survey. Here are some of the survey highlights. Download the Executive Summary for more findings.
Almost 90% of all participants provide a base pay to their sellers with or without a draw or guarantee. 66.9% of the reporting companies plan to give base pay increases in 2020, a slight decrease from 71.3% in 2019. 3% is the median pay increase for companies planning base pay increases in 2020.
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©2020 The Alexander Group – All Rights Reserved – Issue No. 200120
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