Sales compensation essentials for a new sales person (shared)

Mary S. FissPartner

Colletti-Fiss, LLC

www.collettifiss.com(480) 483-1480

Sales Compensation Essentials forthe New Sales Person:

Helping College Students Understand How Sales Jobs are Paid

Prepared by:

© Collett i-Fiss, LLC

http://www.collettifiss.com/

Sales Comp Essentials for the New Sales Person

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Session Topics

What is “sales compensation”?

How are different kinds of sales jobs paid?

What are the key features about which you need information?

What does the offer letter tell you? What does the compensation plan document tell you?

How can you get the information you need to compare the cash compensation offered by potential employers?


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“Sales Compensation” – a Portion of Total Compensation

Total compensation = cash compensation and benefits Base salary and benefits are fixed elements of pay The sales incentive is “at risk” and varies based on performance

Base Salary

Benefits

Variable Pay (“Sales

Incentive”)

Benefits


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How the Type of Sales Job Influences Compensation

Characterization “Seller” “Seller/Account Mgr.”Sales objectives One objective Multiple objectives

Job responsibilities Limited to selling; limited product offering

Diverse - sell; service; broad product portfolio

Company support Limited Extensive

Sales style Transaction oriented Solution oriented

Relationship with the customer

Limited, based on transaction(s)

On-going

Examples of industries/jobs

Real Estate; Financial Services; Business Services

Pharmaceuticals; Software; Professional Services

Prevalent compensation model

Relatively low salary (or draw) + commission; unlimited upside earnings opportunity

Competitive salary + variable pay; bonus, commission or both; significant upside earnings opportunity


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Making An Informed Decision about a Job Offer: What You Need To Know about Cash Compensation

Your total cash compensation at target performance

Your base salary

Your incentive opportunity at target performance

When you are eligible to participate in the incentive plan

Draw or guarantee provision, if any


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The Offer Letter: Typical Elements

Position

Manager

Salary

Incentive opportunity

Benefits

Administrative requirements (e.g., screening,

licenses, NDA)


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Dear ______________: I am pleased to confirm our offer of a position with the Company as a Sales Representative at a semi-monthly rate of $2666.67. You will also be eligible for a car allowance along with an estimated commission of $9,600.00. You will be paid from the payroll system on the 10th and 25th of each month. You will be pleased to know that we pay by Electronic Funds Transfer (EFT). Please have a voided check available when you report to work so that we may set you up on EFT.

Sample 1: The cash compensation element of the letter(Sales Representative --- a New Business Seller)

Not a lot of information

here!


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Sample 2: The cash compensation element of the letter(Territory Manager --- a New Business Seller)

Dear _____:

This letter is sent as a conditional offer of employment for the Territory Manager (TM) position in the _____________________ market place. The offer is conditional on you successfully passing our pre-employment checks outlined at the end of this letter.

The Company acknowledges that employees bring a unique set of talents and abilities to work with them every business day. It is the employee contributions that play a great role in achieving the Company’s Strategic Initiatives and our continuing success. In return the Company offers a competitive and comprehensive benefits program. The Company pays a substantial portion or the entire cost of some these programs that result in significant indirect pay.

In this offer you will see a Total Compensation Offer breakdown to include the following:

DIRECT PAY

Base Annual Pay $ 50,000.00 Product Group A Commissions Paid on the 25th of each month $ 25,000.00 Product Group B Commissions* As earned $ 7,125.00 Total Direct Pay $ 82,125 00

Base Annual Pay is paid from the payroll system on the 10th and 25th day of each month. You will be pleased to know that we pay by Electronic Funds Transfer (EFT). Please have a checking account deposit ticket available when you report to work so that we may set you up on EFT. Commission checks are paid monthly. They are calculated and added to the 1st monthly check.


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Sample 3: The cash compensation element of the letter (An Account Manager Job)

Dear ___________: We are pleased to offer you employment for the position of Account Manager. In this position, you will report to ___________ and will work from your home office. Your annual salary will be $50,000 and will be paid bi-weekly. Also, you will be eligible to participate in our bonus plan, the Company’s Sales Incentive Program (SIP). In 2015, you will be eligible for a SIP target bonus of $10,000. This is based upon you meeting goals and objectives that will be established by your manager and you, as well as the company’s performance. Your eligibility will be in accordance with the Company SIP guidelines.

Not a lot of information

here!


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Sample 4: The cash compensation element of the letter (Another Account Manager Job)

Dear ____________: Company is pleased to confirm our verbal offer for the position of Account Manager, I reporting to _________, in the Sales Division. Your anticipated start date will be 12/3/2015. This offer and your employment relationship will be subject to the terms and conditions of this letter. In this exempt position, your salary will be $50,000.00 annualized less applicable withholding, paid in accordance with Company’s normal payroll practices. Future adjustments, if any, will be made by Company in its sole and absolute discretion. You will be eligible to participate in the 2015 Sales Incentive Program which has an annual targeted incentive of $32,500 prorated from your date of hire. The actual sales incentive earned (which may be more or less than the annual target) will be based on the terms outlined in your Sales Incentive Plan document and will be paid according to the rules of the plan as outlined in the Sales Incentive Compensation Plan document. As a newly hired Account Manager I, you will receive a flat sales incentive payout of $2,000 per month for the first three full months of service to provide time for training and to familiarize yourself with the territory.


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How To Compare Cash Compensation Offers

Offer Base Salary

Target Incentive

Upside(Not commonly defined in the

offer letter)

Cash Compensation

TargetAt

Excellence

2 $50,000 $32,125 2.5x target (target + $48,187.50)

$82,125 $130,312.50

4 $50,000 $32,500 1.5 x target (target + $16,250)

$82,500 $98,750.00

When are you eligible to participate in the incentive plan?

Is there a guarantee or draw until you are eligible?

How many sales people actually make their target incentive? How long does it take to get up to speed?

What’s the upside for over-achievement, and how many actually earn it?


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Making An Informed Decision about a Job Offer: What You Need To Know about Incentive Compensation

Your total cash compensation at target performance

Your incentive opportunity at target

When you are eligible to participate in the incentive plan

The performance measures and performance range:

At what level of achievement you begin to earn incentive,

The “upside” at superior performance


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Where To Get Information

Develop a l ist of questions for:

Recruiter

HR

Your future sales manager

Ask for documentation:

The compensation plan document

Terms and Conditions

FAQs


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Common Key Terms and Definit ions

Salary/incentive mix: The ratio of base salary to incentive opportunity as a percentage of the total target compensation; expressed as two portions of 100%.

Target incentive: what you can expect to earn at 100% achievement of the objectives you have been given

Bonus: Compensation paid as a percent of base pay, a fixed dollar amount, or a multiple of a defined dollar amount for accomplishing objectives; may be “capped” or “uncapped”.

Commission: Compensation paid as a percentage of sales measured in either dollars or units.

Leverage: The amount of upside opportunity beyond total target compensation that management expects outstanding performers to earn.

Threshold: The minimum level of performance that must be achieved before an incentive can be paid.


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“Mix”: Understanding the Trade-off Between Salary and Variable Pay

Incentive Opportunity at Target: $20,000

Low Mix: 80/20

Salary: $60,000

Incentive Opportunity at Target $40,000

Salary: $80,000

Upside 3 x target (3 x $20,000) - $20,000 =

$40,000

Typical Mix (b2b): 60/40

Upside 3 x target (3 x $40,000) - $40,000 =

$80,000

Lower mix means less variable incentive.

Lower variable incentive results in

reduced overall opportunity if the

upside is the same, although a higher

portion of pay (base) is guaranteed.

Lower mix means less variable incentive.

Lower variable incentive results in

reduced overall opportunity if the

upside is the same, although a higher

portion of pay (base) is guaranteed.

$140,000 (uncapped)

$180,000 (uncapped)


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Target Incentive Opportunity : What are the Alternatives?

Percentage of base salary (for example, 25% of salary)

Percentage of the midpoint of the salary grade (for example, 25%

of the salary grade midpoint)

Defined dollar amount (for example, $15,000)

Example (Salary Grade Midpoint is $60,000)

Basis25% of Base Salary

25% of Midpoint

Defined $

Individual’s salary is $50,000 $12,500$15,000 $15,000Individual’s salary is $55,000 $13,750

Individual’s salary is $60,000 $15,000


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Performance Measures:How wil l Sales Success Be Judged?

Generally limited to three; more than three could suggest lack of clarity or agreement about sales strategy

Weighted to indicate how much of the target incentive each measure will be worth; helps to communicate the priorities of the organization

Most valuable measure is generally financial


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Performance Standards (Range):Performance is Not a Single Point!

Threshold • Minimal acceptable level of performance

Target • Expected performance: often stretch

Excellence • Top level (90th percentile) of performance

Performance

Excellence

Target

Pay

Threshold


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What Else? Terms and Conditions Details

When you are eligible to participate

How often incentive is paid

What happens if you take a leave

How the performance measures are defined

Company-specific employment policies

Sales compensation essentials for a new sales person (shared)

Career

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