When all things are equal, fairness can be pretty simple to achieve. But as we all know, not all things are equal in sales compensation. There are many variables to consider when compensating each member of the sales organization, and each individual must adapt to reality when performance incentives are involved. Not everyone gets the same paycheck. That said, it is still on the organization to create the fairest possible environment without losing the competitive drive that helps salespeople achieve great things.

In my last book, Starting Simple: Finding Fairness, I start out by laying the groundwork for what fairness means. 

Fairness is the consistent application under the compensation program guidelines. This is the removal of any favoritism or impartial preferences that may be present in the practices or processes under the compensation program. 

And it wouldn’t be a full discussion on fairness without some understanding of equality and equity as well.

Equality literally means the state of being equal. Equality comes into play in sales compensation and compensation in general at the starting line. This would be equal access to hiring and target levels of compensation regardless of age, race, and gender, for example. 

And Equity is defined as the quality of impartiality. In sales compensation, I’d consider similar accessibility to opportunity (defined by market value, territory, and target). This would be the equitable availability for everyone on the same sales compensation pay program. 

When discussing achieving fairness in sales compensation, we’re talking about taking the time to document processes and procedures, clearly communicate those things, and then apply them unwaveringly. 

This means the organization should identify what is intended, articulate it transparently, and follow through consistently over time. 

What I’m talking about is strategy. If you wanted to become a surgeon, you wouldn’t just put on that white coat and head to the operating room. There is an order of operations (pun intended) associated with making that career move. There is intent, planning, actions, management of progression, and regular follow-through with the timeline and objective. 

That equates to creating a detailed plan with points of progression identified (activities or objectives) in order to achieve that desired outcome. That would also include a review of where you currently are mentally and emotionally in order to figure out that trajectory of future action. This self-assessment is helpful in order to identify behavioral competencies that also need to be addressed in order to become that surgeon. 

Organizations are no different. If there is a vision of being at $10 million ARR, or $100 million profit per year, or $1 billion in bookings, those things don’t just happen by accident. 

They also don’t just happen by digging in and working harder. A strategy is required. Identifying true north and marching in that direction is necessary. And it needs to be documented. 

That extends to sales compensation because the sales organization is expected to execute the strategy. If there is no clarity, then how would performance be measured? What does success look like? The lack of focus or strategy trickles down into the coverage model, the quotas, the territory allocation, the incentive design, and performance management. 

Beyond simply having that strategy, it is important to ensure it is clearly articulated and understood by all employees. That starts with documentation but, as importantly, the follow-through actions that translate into each sales function clearly understanding how their individual role aligns with the pursuit of that strategy. 

As I’ve shared before, I believe there are really only two types of sales incentive plans: Commission and Bonus.

Commission plans are a cost-of-sale approach. These are rates of pay against explicit performance measures such as bookings, revenue, or profit.

Bonus plans are costs of labor approach. A bonus plan is where a target amount of pay is rewarded for an expected level of output or productivity. Generally, it is associated with a financial-based quota or an activity. 

Which type of incentive plan you use depends very much on your strategy and goals, and it has much to do with motivating sales actions and how incentives can reinforce the alignment to those strategic objectives. For example, if your salespeople are selling a contract that can be made up of multiple products, a bonus plan based on the number of contracts closed likely won’t be as effective as a commission plan based on total contract value. 

Digging a little deeper into that example, the bonus plan may very well encourage the sales team to close more contracts. Total contract amount volume or profit may be lost if the measure is quantity only. On the other hand, if the measure is focused on increasing the total value of the contract, both the salespeople and your organization are likely to be better off. But that interpretation all depends on what is desired at that moment in time. Are more logos the objective? Or is one very large customer the goal?

Alternatively, if the organizational culture is exclusively focused on putting the customer’s needs first, you’ll need to keep in mind the behaviors you want to incentivize and the mutual outcomes intended.

It’s the fourth day of sales comp, and we will cover something often forgotten or overlooked in our daily comings and goings. The harsh reality is that bias exists. So now what?

The fact is, our brains are hard-wired for actions and decisions based on our known past actions and decisions. We move at such a fast pace that we have blinders to what biases may exist in our existing processes and programs. And denying it or believing the organization doesn’t have it will only make you blind to the biases that exist. 

The first step is acknowledging that a predisposition is present in our decisions. Biases are shortcuts our brain has created based on past experiences. For example, if you were one day frightened and attacked by a squirrel as a young child, your brain may create a shortcut that says, “Squirrels are bad,” whether or not that is true. 

In reality, our biases are usually more subtle than that and can affect our decisions without us realizing it. I recall a former executive saying, "Sales makes too much," and other leaders commenting, "Salespeople are coin-operated." Those each have biases embedded in them.

So, in your sales organization, how you administer sales compensation, divide up territories, determine quotas, assign opportunities, and even settle disputes is subject to your individual biases and the biases of all the decision-makers in the organization (as well as the salespeople under the compensation program). If that’s the case, then how do you cope with bias?

In Starting Simple: Finding Fairness, I discuss the importance of establishing processes and procedures and the documentation to codify them. You want “the way we do things around here” to be as objective and consistent as possible and not subject to the whims, moods, or biases of any particular member of the team. 

Sometimes, that means making a cultural shift and being comfortable asking why we do what we do or how we can do it better. Clarifying these potential vulnerabilities is the way that everyone has the potential to be on an equal footing, and fair decisions can be made.

On this 5th day, I want to cover the purpose of having a compensation philosophy and its role in guiding how you communicate what is valued (and ultimately paid for) in the organization. 

The first question is, do you have a compensation philosophy? And the second question, is it documented? Because as simple as it may sound, those two things are essential for creating a clear reward system in your organization.

Ultimately, your comp philosophy needs to include information about your business goals, intentions regarding the labor market and internal equity, the alignment of your compensation practices to the organization's values and mission, and a fairness and equity statement.

This isn't just true for broad-based compensation. This is also true for sales compensation. That means clearly stating the sales organization's aims and how pay is delivered for the execution of those objectives.

This document might be a brief statement or a multi-page manifesto, depending on how complex your sales organization is. 

An example of a sales compensation philosophy may include:

 [Business Goals] We aim to support the growth of our organization and the well-being of our employees. Our pay should reflect an appreciation of our employees' hard work and an intention to reward them for going above and beyond.

 [Labor Market statement] The organization participates in a number of salary surveys in our industry and utilizes this robust market data in order to establish and maintain our pay structures. 

 [Organizational alignment] Our employees are important to us. We offer a generous variable pay program to our entire employee population. Knowing that our employees rely on their performance-based pay to provide healthy, happy lives for themselves and their families, we strive to adhere to a clear incentive administration, transparent pay practices, accessible performance measurements, and a clear and regular frequency of payout.

 [Fairness and equity statement] Because of the nature of pay, it is important that we regularly review our compensation levels to ensure that everyone has an equal opportunity to achieve and exceed their objectives. In the event of a change in the sales coverage model, an exercise such as redrawing territories or quota allocation, the compensation program will be reviewed to ensure fair and equitable practices are in place for all participants. Otherwise, we review our sales incentive plan annually for consistency and accuracy.

How do you feel about pay transparency? How does your organization approach pay transparency? It’s a far more interesting topic related to sales – where the vast majority of the compensation is outside of base pay.

More states and countries have adopted pay transparency laws ranging from providing pay ranges for job postings to more stringent requirements for documenting and reporting pay levels across their employee population. 

But the question isn’t whether you think we should or shouldn’t have pay transparency—that’s a moot point as it’s out of our hands now. Pay transparency laws will affect us all in one way or another.

My question is, do you think pay transparency laws improve fairness? The reason this even is a conversation is because, over the past decade or more, there have been numerous reports sharing results of pay transparency laws, including the pros and cons. In Denmark, for example, they found that pay transparency laws did narrow the gender wage gap, but they did so by slowing the growth of pay for men—not exactly the intended outcome of the law.

Other questions regarding pay transparency include:

· What about organizations that skirt the law's intentions by reporting overly wide pay ranges or excluding hiring in certain states?

· Will pay transparency result in the homogenization of pay ranges for each role?

· Does pay transparency reduce an individual’s ability to negotiate wages?

The good news is, if fairness is the goal, you don’t need pay transparency laws to achieve it. 

Specific to sales, pay transparency extends beyond the posting of pay levels and creeps into the aspects of target setting, market/opportunity valuation, and territory assignment. When we talk about pay transparency for variable pay, we certainly have to address how variable pay will be documented, earned, and ultimately delivered to the salesperson through plan administration. 

As your organization continues preparing for pay transparency, keep in mind these aspects for the sales population.

How do you decide who's eligible for a sales incentive plan? What criteria or judgment is made by your organization to determine what jobs should participate in sales comp?

It's day 7 of my 12 Days of Sales Compensation series. So far, we've talked about strategy, bias, pay transparency, and philosophy, to name a few. Now, let's talk about how you decide who is eligible for the sales compensation program. 

As with so many things in life, selling a product or service isn't usually as simple as a single role, working alone, closing sales. Often, there is a whole team involved, including marketing, lead development, client success, product specialists, technical/deal development, inside sales, account managers, etc. So, how do you decide who gets paid sales comp?

To determine this, you'll want to identify where the role fits according to your organization's compensation philosophy and strategy. You'll also want to consider the role's proximity to the buyer's decision. Beyond that, I recommend using the following questions:

1.     Does the role involve repeatable actions like engaging with customers according to a sales process? Are there predictable activities in the role?

2.     Does the role involve achieving specific financial objectives? Is performance demonstrably measurable?

3.     Does the person in the role have access to and the ability to influence external decision-makers?

I do believe it's different for every organization. How does your organization determine who qualifies for sales compensation?

As I started sharing about writing these 12 days, Scott Werstlein started singing Jeff Foxworthy’s parody of the 12 Days of Christmas. For those that aren’t familiar with it, you have been missing out on a cultural hit from the late 1900’s. 🤣 😂 😎 

But seriously, for Day 8, I actually want to cover the concept of Parity. 

We are talking about pay. While there isn’t much consistency on the internet on the definition of parity vs. equity, I’d consider them to be, in reality, analogous. The concept of parity is substantively similar as it is intended to address inequities that may exist across the employee population. 

So what’s different for sales? In many organizations, the compensation for the salesforce is something that is left to the business to figure out. This means there may be little to no independent assessment of the total target pay, audit of the design or documentation, levels of pay, or actual earnings by job and across the different demographics of the population. 

Ultimately, the goal is to ensure there are no intentional gaps in pay. Digging in with a fresh eye on a regular cadence is required to ensure that the job content is accurate, jobs have been evaluated, that there are justifications for the amount of pay, that plan documentation exists, and that the employee base is clear on how to earn under the sales compensation program. 

Ensuring that no pay disparity exists starts by doing our homework and following up regularly to assess that the pay being delivered is congruent with the intent of the compensation program. And it is completed when there are no groups that are disadvantaged over time.

As organizations grow, they tend to restructure. At first, it may just be one person or a small team sharing roles and juggling tasks. With success, more employees come on board, and that original team begins to manage others. With more success, the team continues to expand. More levels of management and individual contributors are needed, and complexity grows. At some point, sales compensation management no longer belongs to a single person and no longer impacts a single organizational team. That’s when governance gets important.

Governance is the process and method by which decisions are determined and implemented.

Governance is an ongoing process because strategy, culture, and jobs evolve over time, necessitating the need for exceptions and adjustments to the compensation program and its underlying philosophy. 

One of the best paths towards consistency is the establishment of a committee. The members should include representatives from departments that have an immediate stake in the success of the sales compensation program. This includes accounting, which generally administers payments under the plan; operations or marketing, which supports commercial strategy and execution; human resources, which generally produces the legal documents and determines levels of pay; and, of course, Sales! 

Your organization may be a little different, as legal, total rewards, finance, engineering, or client success may be more influential or determinant in your commercial actions. The value of having multiple departments is that each role has a vested interest in sales compensation and brings its own unique perspective to the decision-making table. 

You’re such a good seller; let’s promote you! But there’s a big difference between doing what you do and showing someone else how to do what they need to do to be a good seller!

You probably know someone like this. Maybe this is you! 

For day 10 of the 12 Days of Sales Comp, I want to talk about the functions of sales management. Sales management does have the luxury of having more sticks and carrots documented than other jobs. But, as I believe most people understand, success is rarely driven by rewards and consequences alone. 

Here are some of the roles that I’ve seen in the best sales managers. 

·      Be a coach. Coaches offer guidance and encouragement. A coach instructs and trains. A coach also asks good questions to prompt growth and evolution.

·      Be a mentor. Be willing to get hands-on to show the ropes, know when to step away, and be available as a support.

·      Be an advocate. Speak on behalf of your employees and advocate for their needs.

·      Be a motivator. Sales is an aggressive, competitive job where mental and emotional energy are needed in order to thrive. Motivators fuel their employee’s enthusiasm and desire to help their employees.

Welcome to the high wire and the balancing act between organizational needs and sales team needs. 

One sales leader I work with said that front-line sales management was the toughest job in his company. When you’re caught between those who control the budget and those who have to go out and hit quota, there is a lot of juggling to do. 

Finding the equilibrium between the demands of the organization and the fairness of the individual salesperson is an important exercise and should be pursued at each step in the sales compensation process. For sales leadership, that generally includes quota allocation, territory assignment, and market evaluation, to name a few. 

In Starting Simple: Finding Fairness, I use this example:

 Let’s say you’ve divided the United States into several regions. The company has designated a goal of $100 million in sales for the fiscal year. You have five sales reps. One for each of your five territories. You’ve given the northeast, which contains many small states with densely populated cities, to Salesperson A. You’ve given the Midwest, containing large states such as Wisconsin, Minnesota, Iowa, Nebraska, and the Dakotas, to Salesperson B. Let’s say your organization is selling farm equipment.

The easy math is to give them each a quota of $20 million in sales. But when you consider fairness and equitable opportunity, these equal target numbers necessarily don’t make sense. Assessing the opportunity available in each of those territories, you might just find that Salesperson B has significantly more opportunity than Salesperson A. 

Sales leadership has to balance decisions like these all the time. Budgets are never what we wish they were, and allocating territory and opportunity is never cut and dry.

Do you remember learning to ride a bike? Did you hop on and immediately start jumping ramps and popping wheelies? Or did you have to learn to balance while pedaling, brake at the right times, and recover from a few bruises and skinned knees along the way? 

On the 12th Day of Sales Comp, I want to talk about nurturing success for salespeople by giving them the time, space, and training they need to develop their skills. 

When talking about fairness in sales compensation, I do a lot of harping on the importance of documentation, but that’s really the easy part, and once it’s done, it’s there to support you in the hard part: performance management and development. 

Because sales is constantly moving, growing, and changing, the dynamics of fairness in performance management can be challenging. In my view, it’s important to keep as objective as possible, make decisions that are consistent with your documentation, and deliver feedback in a non-judgmental and constructive way. 

Goals and metrics are necessary feedback mechanisms that allow you to keep apprised of your salespeople and their progress. Try to be as objective as possible in establishing the measures. You will want to develop common benchmarks and performance standards. 

Having expectations clearly outlined helps the salespeople themselves understand where they are and how they’re doing, much like how you learn to ride a bike better after every fall. 

We all need to see clear next steps, receive regular feedback, and be provided with direction to take the right path forward. Additionally, data from performance measures over time illustrates both what we are doing right and what we are doing wrong.

As we finish the series, I want to remind everyone that none of the topics outlined in the prior 12 days of guidance take you very far if sales comp is misaligned with your organizational culture and the underlying business strategy. Additionally, if the culture isn’t conducive to improvement, growth, or reward for performance, then your sales compensation strategy won’t be able to overcome bias, execute successfully, or clearly deliver on its documented philosophy.

Cultural awareness may be a necessary first step in this process of alignment. How do the values, mission, and purpose present themselves in the plan document? Or in the coverage model? What about the training? 

Ideally, the way the salesperson presents themselves to prospective customers, as well as in existing customer relationships, is the same as the way the organization intends through what is presented in the public forum of media. Is there congruence? Or is there conflict?

My sentiment is that the sales compensation design and processes must be aligned with the existing culture of the organization; otherwise, they will do little to promote forward movement for the sales team.