Why the Sales Director has less on-target incentive than the Sales people

SQ - Why the Sales Director has less on-target incentive than the Sales people

At previous organisations with a sales force, we had to determine rules regulating the split between fixed and variable pay for the population eligible to the Sales Incentive. Besides benchmarking with other companies in our markets, we used an internal logic.

We would start from the bottom up ie define, first, what a sales role was for an individual contributor. We would use a simple decision-tree approach to Sales Incentive eligibility that I described in a recent post.

A SIP-eligible position would be one where the jobholder’s main accountability is about closing the sales and making the revenue come into the company. The jobholder “owns the account” and owns the relationship with the client(s).

So that usually takes out marketing roles, as well as some technical support roles responsible for maintenance etc (these can sell some services too or even some products, but their MAIN responsibility is customer service and maintenance ie not sales).

Then a Sales Manager is a person whose role is to team lead some Salespeople. He will also be in charge of closing some deals, especially providing support to the Sales guys. Because his role starts to focus on people management and territory management etc, there will be a higher base and lower on-target earnings as there is less direct involvement in the actual sales process.

The Sales VP or Director is the manager of sales managers. His role is mostly about setting the strategy for the organisation in terms of Sales, managing territory, liaising with marketing, product development, HR etc… so he will have even less focus on actual selling himself. Depending on the company he will or will not be on SIP and the Fixed/Variable pay ratio will be the same as that of any other top person in the organisation such as the Finance Director or VP of Manufactiruing.

Lastly, I would say that the level of the top role (VP or Director, grade 25 or grade 26 etc) is determined through the same methodology as job leveling / job grading for any position in the organisation. The less direct impact on the financials/revenue is usually “compensated” by the focus on strategy and direction-setting for the organisation etc so that the number of points (Hay or otherwise) is still higher than that of the sales individual contributor.

Overall, job content is the driver of the decision on whether the role should be on the Sales Incentive or not, and also informs decisions on the on-target bonus and ratio between fixed and variable pay. It is important to have some criteria in place so that you can make informed decisions when the organisation changes, or when an employee challenges the decision.

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