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Are Sales Compensation Plans Industry Specific?

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 Versus Sales Representatives

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 Representative Plans Vary Widely

Sales representatives’ sales compensation plans can vary significantly among industry competitors for the following reasons.

  • Unique Job Configuration. Sales management configures sales jobs to match multiple factors: customer segments, buyer journey, promoted customer value proposition and seller’s persuasion role. Sales leaders configure sales compensation plans to match the company’s sales job configuration. Unique job configuration is why there are significant pay plan designs among industry competitors. The role of an account manager differs from one company to another. The pay plans reflect these job design differences.
  • Management Philosophy. Yes, philosophy counts. Sales management can apply different visions of how to manage a sales team. These philosophical beliefs can (and should) influence the design of the pay plan. Sales management may believe in strong teaming, sales execution excellence, sales meritocracy, the benefits of market makers, or digitally integrated sellers. The list of varied values is extensive. Sales management beliefs will influence the configuration of the sales management model and, of course, the design of the sales compensation program.

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.

Sales Compensation Building Codes for Sales Representatives

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.

Get Your Copy of the Executive Summary…

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.

  • 90% plan to make changes to their 2020 sales compensation plans. The most common change is to update performance measures. Top performance measures for 2020 include sales revenue, new accounts and units/orders.
  • Sales leaders expect sales revenue to grow 6% in 2020. However, they are more cautious about 2020. Only 39.8% of the survey respondents have above-average confidence they will achieve their revenue objective for 2020. This is a drop from last year’s confidence of 57%.
  • 3% is the projected increase in incentive payments for 2020.
  • 4% of the surveyed companies plan to increase headcount in 2020. Turnover is expected to be 10%, which is consistent with previous years.

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.

 

David

David Cichelli
Sales Compensation Educator, Author, Speaker
Connect with me on LinkedIn!

 

 

©2020 The Alexander Group – All Rights Reserved – Issue No. 200120

 

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