THE SALES COMPENSATION
CONUNDRUM
How Compensation Impacts Sales Organization Quality and Performance
Written & Researched by
Steve W. Martin
Sales Expert, HBR Contributor, and Author of the Heavy Hitter Sales Series
Nick Hedges
President
CEO of Velocify
The Sales and
Compensation
Conundrum
1
About the Authors
About Steve W. Martin
Steve W. Martin is an expert on the human nature of complex sales. His “Heavy Hitter” series of books for senior
salespeople has helped over 100,000 salespeople become top revenue producers. His new book is titled Heavy
Hitter I.T. Sales Strategy: Competitive Insights from Interviews with 1,000+ Key Information Technology Decision
Makers and Top Technology Salespeople. Steve is a regular contributor to the Harvard Business Review and
teaches at the University of Southern California Marshall School of Business MBA Program. You can learn more
about Steve at www.stevewmartin.com.
About Nick Hedges
Nick Hedges is the president and CEO of Velocify and a 15 year veteran of the Internet and software as a service
(SaaS) industry. Nick has spent the last seven years at Velocify helping organizations accelerate sales performance
and is a widely-recognized thought leader with respect to technology’s transforming impact on the sales
profession. Nick is also a regular contributor to Inc.com, where he writes a column called Sales Acceleration. For
more on Nick, visit http://velocify.com/company/leadership/
The Sales Compensation Conundrum
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How Compensation Impacts Sales Organization
Quality and Performance
Salespeople and sales leaders alike know that
compensation can be a strong motivator, but it usually
comes at a high budgetary cost. This leads many to
ask what the real impact of compensation might be on
overall sales professionals’ satisfaction and performance.
This study explores the answer to that question.
Nearly 800 sales professionals participated in a sales
organization performance study by completing an
extensive 42-question survey. Participants were asked
to share their opinions on their sales organization and
personal details on their company’s compensation. In
exchange for their candor, it was agreed their names
and organizations would remain anonymous.
Twenty-two percent of survey participants were toplevel sales leaders, such as vice president of sales;
14 percent front-line sales managers, who manage
salespeople; 17 peaent were hybrid sales managers,
who sell directly to customers and manage other
salespeople; and 47 percent were salespeople, who
carry their own quota.
Study Participants by Role
47
%
22
%
Quota-Carrying
Salespeople
Top-Level
Sales Leaders
14
%
17
%
The Sales Compensation Conundrum
Front-Line
Sales Leaders
Hybrid
Sales Leaders
3
How Compensation Impacts Sales Organization
Quality and Performance
The industries represented in the survey in order by
number of participant responses were financial services,
high technology, business services, manufacturing/
distribution, education, retail/hospitality, media/
entertainment, healthcare, and energy/utilities.
for an industry leader with significant market share in
their field, 32 percent for a well-known company within
their market space, 29 percent for a lesser known
company who has to compete against well-known rivals,
and 18 percent for a relatively young company trying to
establish market presence.
Study participants were asked to describe their
company’s market position. Twenty-one percent worked
What best describes your company?
18
%
29
%
A relatively young or unknown
company trying to establish
market presence
A lesser known company
who has to compete
against well-known rivals
The Sales Compensation Conundrum
21
%
An industry leader with
significant market share in
our field
32
% A well-known company
within our market space
4
How Compensation Impacts Sales Organization
Quality and Performance
Top-level sales leaders and sales managers were
asked to categorize their company’s compensation
compared to other companies within their industry.
Twenty-eight percent indicated their company’s
compensation was higher than market average, 60
percent were at market average, and 12 percent
were below average market average. Each category
of compensation was then analyzed from a number
of different perspectives to determine the impact of
compensation on sales organization performance.
Sales leaders, how does your company’s compensation
compare to others within your industry?
Below Average
Market Compensation
Above Average
Market Compensation
12
%
28
%
$
60
%
Average Market
Compensation
The Sales Compensation Conundrum
5
Revenue Growth Tied to Compensation
Seventy-three percent of sales leaders at companies
that compensate above market level reported increased
revenue from 2013 to 2014, compared to 60 percent
of sales leaders that compensate below market level.
Conversely, 40 percent of sales leaders at companies
that compensate below market level reported flat or
decreased revenue, compared to 27 percent of sales
leaders that compensate above market level.
Sales leaders, how did your company’s annual revenue last
year compare to annual revenue the year before?
60%
Below Average
Market Compensation
40%
73%
Above Average
Market Compensation
0%
10%
20%
30%
40%
27%
50%
60%
70%
80%
90%
100%
Percentage of respondents
Increased Revenues
The Sales Compensation Conundrum
Flat or Declining Revenues
6
Compensation Associated with Sales Organization Excellence
Forty percent of sales leaders at companies that
compensate above average market average rated their
sales organization as excellent compared to 16 percent
at average compensation and 8 percent at below
average market compensation companies. Conversely,
57 percent of sales leaders at companies that
compensate below market rated their sales organization
as average or below average compared to 34 percent
at average compensation and only 16 percent at above
average market compensation companies.
Sales leaders, how would you rate your sales organization?
Excellent Sales
Organization
Above Average
Sales Organization
Average
Sales Organization
Below Average
Sales Organization
0%
10%
20%
30%
40%
50%
60%
Percentage of responses
Above Average
Market Compensation
The Sales Compensation Conundrum
Average Market
Compensation
Below Average
Market Compensation
7
Perceived Quality of Sales Leadership Is Directly
Related to Compensation
Thirty-eight percent of salespeople who sell for above
market compensation companies rated their sales
leadership as excellent compared to only 2 percent of
salespeople at below average market compensation
companies. Conversely 22 percent of salespeople at
below average market compensation companies rated
their sales leadership as below average compared to
only 4 percent of salespeople at above average market
compensation companies.
How would you rate your sales leadership?
Excellent
Above Average
Average
Below Average
0%
10%
20%
30%
40%
50%
60%
Percentage of responses
Above Average
Market Compensation
The Sales Compensation Conundrum
Average Market
Compensation
Below Average
Market Compensation
8
Sales Organization Morale Is Directly Tied to Compensation
Sixty-six percent of sales leaders at above average
market compensation companies rated the morale
across their sales organization as excellent compared to
only 21 percent at below average market compensation
companies. Conversely, 27 percent of sales leaders at
below average market compensation companies rated
morale as below average compared to only 4 percent at
above average market compensation companies.
Sales leader, how would you rate the morale across your sales organization?
Higher than most
organizations
About the same as
most organizations
Lower than most
Average
organizations
0%
10%
20%
30%
40%
50%
60%
70%
Percentage of responses
Above Average
Market Compensation
The Sales Compensation Conundrum
Average Market
Compensation
Below Average
Market Compensation
9
Compensation Impacts Sales Organization Culture
Thirty-seven percent of sales leaders at above
average market compensation companies described
their sales organization as “a cohesive group of likeminded individuals” compared to only 23 percent
at below average market compensation companies.
Conversely, 42 percent of sales leaders at below
average market compensation companies described
their sales organization as “a loose collection of
individuals” compared to 23 percent of sales leaders
at above average market compensation companies.
Sales leaders, what best describes the composition
of your sales organization?
A cohesive group of
like-minded people
A team of seasoned
professionals
A loose collection
of individuals
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Percentage of responses
Above Average
Market Compensation
The Sales Compensation Conundrum
Average Market
Compensation
Below Average
Market Compensation
10
Companies Where Compensation Was Not Capped Reported
Higher Quota Attainment Rates
Seventy-nine percent of sales managers reported
achieving their annual quota last year at companies
where compensation was not capped compared
to 72 percent of sales leaders at companies where
compensation was capped. Fifty-one percent of
salespeople achieved their annual sales quota at
companies where compensation was not capped
compared to 48 percent at companies where
compensation was capped.
Is compensation capped at your company?
Sales manager
average quota
attainment
Sales managers
reporting the
percentage of their
salespeople
who made quota
0%
10%
20%
30%
40%
50%
60%
70%
80%
Percentage of respondents
Not Capped
The Sales Compensation Conundrum
Capped
11
Companies Where Compensation Was Not Capped Reported
Higher Quota Attainment Rates
When the impact of capping compensation is
analyzed for all study participants, the results suggest
companies that achieved lower percentages of their
revenue targets were more likely to cap compensation.
Percentage of companies where compensation is capped
Revenue target attainment of companies that cap compensation
40%
35%
30%
25%
20%
15%
10%
5%
0%
<50%
50%-79%
80%-99%
100%
Percentage of revenue target attained
The Sales Compensation Conundrum
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Final Thoughts
The study results substantiate that different sales force compensation strategies can greatly
impact the performance and quality of sales organizations. Decisions about whether to cap
compensation and whether to pay the sales force above market average, at market average, or
below market average can have a substantial effect on revenue growth, company excellence,
quality of sales leadership, morale, culture, and quota attainment.
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About Velocify
Velocify is a market-leading provider of cloud-based intelligent sales software, designed for high-velocity sales
environments. Velocify helps sales teams keep pace with the speed of opportunity and increase revenue by
driving rapid lead response, increased selling discipline, improved productivity, and actionable selling insights.
The company has helped more than 1,500 companies across a variety of industries improve customer acquisition
practices and sales performance. Velocify was recently recognized as one of the fastest growing companies in
North America by Deloitte and a Best Place to Work by the Los Angeles Business Journal. For more information,
please visit velocify.com or follow the company on Twitter @Velocify.
Contact Sales: 888-843-1777 l [email protected]
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The Sales Compensation Conundrum
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