Over the past few months, I’ve been creating a series of posts on sales compensation specific to different roles in the organization. Of course, this gets tricky because the job content of any role is highly specific to the organization and its strategies. However, there are some good guidelines that apply across all roles and industries.

In the first post, I talk about compensating inside sales, including how DOL requirements affect how you leverage this team and ultimately pay. In the second, we get into compensating field sales roles and the challenge of aligning strategy with compensation to motivate the behaviors you want to see demonstrated and intimately attached to optimal business outcomes. In the third post on compensating the specialist sales role, there’s an extensive list of considerations for paying different types of specialists.

Now, it’s time to talk about compensation for the sales manager. This is arguably the most crucial compensation strategy to get right due to the position of the sales manager in directing and motivating the entire sales team.

Understanding the Sales Management Role

The sales manager has pivotal responsibilities that directly impact the success of your organization. Many call this the most difficult sales function (or at least underappreciated). The role likely includes many of the following requirements:

• Team leadership and development: A good leader makes all the difference in creating and demonstrating resiliency (and other important sales team values) for the team, making them stronger and more capable of not only achieving success in the context of an effective strategy but of adapting and pivoting in the face of unexpected change.
• Sales strategy implementation and execution: The most obvious crucial element in the sales manager’s role is the ability to translate organizational objectives into sales success for each of the individual contributors on the team.
• Customer and Prospect relationship management: Managing sales goes beyond finding customers and closing deals. A good manager knows how to communicate organizational expectations (like account management and adherence to sales processes) as well as communicating best practices for maintaining relationships to create long-term satisfaction and repeat customers.
• Cross-departmental collaboration: Because the sales manager has one foot in the sales world and one in the leadership world, it’s vital that they can speak both languages and understand both the executive strategy as well as the sales team’s role in that strategy.

Key Considerations for Sales Management Compensation

Some of the most common complaints of the sales managers come when they’re promoted from a sales position. Often, a sales manager’s pay mix includes a higher base pay as a percentage of the total target cash. In many cases, that also translates into lower variable targets or lower incentive payouts relative to their team. This shift, if not coached through early on in the sales manager’s career, can lead to resentment that the salespeople can sometimes pull in bigger commission checks.

There are always positive aspects to promotion, such as career aspirations, greater visibility to business decisions and investments, and more stable pay levels (as they are usually on aggregate measures). If the motivation for the move is unclear (or not the choice of the individual), you may have a future problem on your hands. Ultimately, it’s vital to make sure the compensation for a sales manager is strategically aligned with the behaviors and outcomes you want to see from that leader.

Aligning Compensation with Company Goals

The first goal of your compensation strategy is to make sure it not only makes sense with your budget but also aligns with the strategy. In contrast, the field sales rep’s variable pay is generally tied to one metric—sales—the manager’s needs to be tied to a wider range of goals, including both quantitative financial goals, like revenue and profitability, and qualitative goals, such as customer satisfaction, market penetration, or team performance and development.

Finding the right mix

As mentioned before, higher levels of guaranteed base pay are one of the reasons people move from sales to management (or structurally encouraged by the company). There’s a different kind of pressure because the pay level is secured. In many cases, that also requires less weekly travel. However, they’re also responsible for meeting a larger aggregate quota and motivating a team. And that’s where variable pay comes into play. Finding the right mix is essential to helping your sales manager find a balance between mental well-being while also staying a bit “hungry” and capable of motivating the team. Ultimately, you want the manager to inspire, coach, and mentor their team, not drive them into the ground (or out of the organization).

Incorporating Team Performance

Speaking of inspiring the team, another consideration for compensating the sales manager is how you want to tie their team’s performance to pay. The answer to this consideration is in the details of your manager’s responsibilities. How much influence do they have over things like territory and opportunity assignments or budget quota? Generally, the more hands-on and in control of these aspects as a sales manager (with the tactical execution of selling), the more at-risk pay should be on the table. And that will vary with layers of management – from team lead or supervisor to VP of Sales or the CRO. You will also want to proactively account for pay implications where the team’s territory is uncovered, team members are on leave, or positions are not allowed to be backfilled.

Compensation Models for Different Sales Management Roles

Another vital consideration is the type of sales leader position you’re compensating for.

Frontline Sales Management

Base pay should be competitive enough to reflect the manager’s leadership responsibilities and day-to-day support of the sales team. However, variable pay should be significant and tied to team performance metrics like the team’s total revenue quota and sales growth, ensuring that managers are motivated to inspire their team’s success.

Regional or National Sales Managers

The compensation plan should offer a higher base pay level due to the strategic nature and broader scope of their role (as well as market demands). Variable pay should be linked to regional or national sales targets, market share, and the successful execution of strategic initiatives, aligning their compensation with short-term and long-term company objectives. This level is where long-term incentives may be introduced based on organizational philosophies.

Sales or Commercial Operations Management

Due to often playing a less direct role in revenue generation, their compensation should be weighted more towards base pay. However, Inside Sales often sits in this function. Expect that they may be on a corporate incentive program rather than a sales incentive plan. If on sales compensation program, the variable pay emphasis should be tied to organizational-wide financial measures but also tied to metrics like sales process efficiency, CRM data accuracy, and the successful implementation of sales strategies, ensuring they are aligned with the operational success of the sales organization.

Your Compensation Plan

Again, I can only give you the broad strokes and best practices regarding role-specific compensation. Still, if you keep these in mind, you should be able to apply them to your organization’s specific strategies and goals.

As always, I’m available if you have any questions or want to set up a consultation. Reach out anytime.