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Pay vs. Performance: A Framework to Improving Your Compensation Structure

Pay vs. Performance: A Framework to Improving Your Compensation Structure

We all know that you need to make sure you're compensating the right sales efforts. Offering the right rewards for impactful sales efforts keeps your sales team motivated and incentivised to keep selling. It also keeps your best sales team members in your sales team. 

But nailing down what constitutes the “right” rewards for the “right” efforts is ever the challenge facing sales compensation experts. It depends on internal and external factors that are (and always will be) constantly in flux. 

It’s a delicate balance. If you over-reward the wrong efforts, you risk overpaying underperforming salespeople while struggling to retain your high performers. That’s why you review your compensation plans every year or two to make sure that you’re not rewarding the wrong behaviours.

We've developed a framework (with a free template) that will help you quickly see how your sales compensation structure is performing and identify any inefficiencies, including who is over and underpaid by the current compensation structure.

With this pay vs. performance data, sales leaders have what they need to address concerns from their teams while compensation managers can easily dive into their plans to find and fix the root causes and test and audit their new compensation structures.

The Three Principles of Pay vs. Performance

What is pay vs. performance? In short, it’s about making sure that you’re rewarding your top performers’ sales efforts while providing the incentives that will motivate those who are coming up short to improve their results.

Reward Top Performers

We can talk all day about the benefits of office foosball tables, but when it comes down to it, compensation is one of the key aspects of a sales job. Now, let’s be clear, it’s not the only factor. The visibility of a salesperson’s achievements, that is the public recognition of their performance by their peers, is almost equally important. Nonetheless, it’s still important to properly reward your over-performing salespeople financially. 

Despite this, some companies offer very little to sales team members who overshoot their quotas, giving salespeople minimal incentive to go above and beyond. In these situations, average and low performers earn a more than fair level of compensation for their target achievement but those who sell above their quota aren’t suitably rewarded for their sales efforts. 

Sometimes, compensation plans can unintentionally act like Robin Hood, taking from the high performers and giving to the average and low performers, by rewarding the wrong sales efforts. It can lead to your top performers looking for work elsewhere while leaving you with a “committed” team of average and below-average salespeople.

This is where the concept of “Reverse Robin Hood” comes into play. Instead of paying those who are achieving below their quota thresholds, organisations should use those resources to reward the efforts of their top performers. This can be accomplished in several ways. You can use decelerators, cliffs, and/or accelerators based on your existing compensation plan structure to shift rewards towards top performers.   

In the end, if a sales team member is overachieving, they're likely a valuable asset that’s well worth the investment. However, before making that call, double-check that your targets aren’t too easy, particularly if you’re seeing a lot of “high achievers”. If they are the real deal, it’s important to properly compensate them. It’s how you motivate them to keep up the good work while also showing them that their drive and dedication are valued. That increases the likelihood that they stay with you and keep performing at a high level. Ultimately, it’s a win-win situation.

We can talk all day about the benefits of office foosball tables, but when it comes down to it, compensation is one of the key aspects of a sales job.

Properly Compensate Average Performers

Not everyone is going to be a top performer. The majority of salespeople are going to be average performers and that’s okay. Many organisations, particularly large ones, want to avoid the attrition of average performers too.

Average performers may not be blowing through their quotas, but they are hitting (or nearly) their targets. It means that they’re doing exactly what your company is paying them to do. Replacing salespeople is an expensive and time-consuming process. Between recruitment and training costs and ramp-up times, it takes a company months before they turn a profit on a new sales hire. Given the cost, retaining your average sales team members is the preferred option.

This is why it's good to avoid under compensating your average performers. They’re not your very best, but you’re better off with them on your team. Ensuring your cliffs and decelerators thresholds taper off when your salespeople get close to their quotas is a clever way to properly reward them without taking away the resources that are needed to compensate top performers.

Don’t Overpay Underperformers

Let's face it, underperforming salespeople slow down your organisation. That's why it's necessary to ensure you’re not over-rewarding underperformers for the wrong (or lack of) sales efforts. It’s the other side of the “Reverse Robin Hood” principle. You need to avoid rewarding underperformers with overly generous compensation that gives them little incentive to perform the sales efforts that are necessary to reach their quotas. This can be done using cliffs and decelerators, among other options.

Avoiding overcompensating underperformers gives them the incentive to pursue the right sales efforts that will get them the greater rewards offered to top performers. An implicit benefit of this approach is that it naturally pushes out chronic low performers, who will look for opportunities elsewhere.

Of course, it's crucial not to disincentivise below-quota sales efforts too much. If your quotas and cliffs are too ambitious for your salespeople to realistically meet, you can demotivate your whole sales team, including those who could have been top performers.

Pay vs Performance Quadrants

Finding the Balance

The goal is to find the sweet spot where underperformers are incentivised to improve, average performers are satisfied with their compensation, and the resources are available to reward top performers so they remain motivated to stay with the company. When done right, this approach can contribute to commercial excellence, creating a sales organisation that hits targets, reduces team churn, and retains top performers.

As a first step to achieving this, you need to understand how your current sales compensation structure is faring. That means figuring out who is getting too much, who getting too little, and who is getting just the right amount. Identifying how your existing sales compensation structure is working is critical to understanding how and where to improve it. The good news is that we’ve built a tool to help.

Two Steps to Analysing Your Sales Compensation Structure 

So, how exactly do you do this easily? Get this free template then break out your sales compensation data, it’s graph time 😎 

1. Create Your Graph

Pay vs Performance Graph

When you set up your graph, you’re going to divide your sales team into three categories: red, green, and yellow.

Green Zones: These are sweet spots. Anyone who falls into one of these zones (which we’re going to see in the next steps) is getting the right range of compensation. 

Red Zones: The red zones are your danger zones. People who fall into these zones are being paid either too much or too little. 

Yellow Zones: Yellow zones are exceptional ones. Overperformers who fall into these zones are overcompensated while also overshooting their quota. On the other side of things, underperformers in these zones are still being under-compensated for their sales even after taking into account that they’re not hitting their targets.

2. Map Your Sales Team and See Who Lands Where

Pay vs Performance Graph with Salespeople Displayed

Now that you’ve set up your zones, it’s time to do a classic performance and pay correlation test (use the free template). Here, you’ll need to input each sales team member’s compensation and sales performance. The result will be a scatter plot with the members of your sales team arranged based on their quota achievement and on-target incentive earned.

Pay vs Performance Quadrants with Salespeople

Now that your team is plotted on the chart, you can easily see who’s in the green, red, and yellow zones. It should quickly become clear which team members are getting their fair share and who’s getting too much or too little.

Getting the Most Out of the Framework

You’ve got an introduction to the framework, but let’s dive in on the best practices that will make the process especially useful for optimising your sales compensation plan(s). 

Clarify the Scope

This framework will give you the best results if you focus on a specific subset of your sales team. Generally, that means salespeople who are included in the same sales compensation plan. Plans can vary by team, role, and territory. Nonetheless, you want to be able to compare your different teams to each other. Still, it’s best to start by analysing the performance of each compensation plan first. From there, you can identify the outliers and the causes for each different plan and use that data to compare them to one another.

Identify Your Overpaid and Underpaid Sales Team Members (and the Exceptions)

After plugging in your salespeople’s quota achievement and on-target incentive earned, you’ll get a clearer view of who’s being paid the right amount, who is being overpaid, who is being underpaid, and who your exceptions are based on which “zone” they’re in. 

Align on the Exceptions

Speaking of exceptions, you may see underperformers who are being underpaid or overperformers who are being overpaid. These are the exceptions. They happen and that’s fine. What’s important is that you, as an organisation, are aligned on how to deal with them.


Underpaid Underperformers. What to do?

Adjusting compensation packages for underperformers who are also underpaid requires a delicate balance between incentivising improvement and avoiding over-rewarding mediocrity. This situation isn’t the end of the world by any means, but that doesn’t mean adjustments shouldn’t be made. 

You’ll need to dive into why they’re underpaid. And this is going to be different for every organisation depending on their culture, situation, and sales philosophy. Are there certain valuable sales efforts that aren’t being rewarded as much as they should be? Review your compensation plan to find and address the causes. Are the efforts you’re rewarding not aligned with your sales cycle? Is the sales team encountering internal bottlenecks at critical points in the sales process? These are all potential causes that should be investigated.  

In the meantime, you can also consider some short-term stopgaps as well. One approach is to offer SPIFs or commission increases when specific goals or benchmarks are reached.

On top of that, you should consider offering additional training or coaching to help these team members develop the skills they need to succeed. By investing in their growth and development, you improve their chances of meeting their goals and earning more for themselves and the organization in the future.

Are there certain valuable sales efforts that aren’t being rewarded as much as they should be?

And Overpaid Overperformers?

Adjusting compensation packages for overpaid overperformers is tricky. They’re doing a good job but there was still a hiccup in your compensation structure that gave them a bit more money than it should have. To avoid potential awkwardness, it's important to be transparent and communicate clearly about the situation and the changes that are being made. 

In contrast to creating a scenario of sales team mistrust, the pay vs performance tool can be a valuable source of truth to show your overpaid overperformers why the existing compensation plan needs to be modified. While there may be objections, showing them precisely why the previous compensation structure was unfair and how they will still benefit from the changes goes a long way to not hurting too many egos.

Identify the Cause(s)

So you have your list of overpaid and underpaid salespeople (we’ll leave exceptions out of this). Now, you need to dive into your data to find out why. Segment your overpaid and underpaid lists and see if there are shared trends on certain KPIs. 

For underpaid team members, are your cliff thresholds too high? For overpaid, are you rewarding sales efforts that aren’t necessarily leading to closed deals, like meetings booked or demos completed? Look to see if there are commonalities within each segment of salespeople. More than likely, you’ll find at least one thing they all have in common. 

Document the Changes and Rationale

You’ve identified the weak point(s) in your sales compensation so now it’s time to make the adjustments to compensate the right sales efforts and put those overpaid and underpaid sales team members in the right spots. 

As we all know, you don’t just adjust your compensation plan and go. You also need to document the changes and rationale behind them. So document the issues, the fixes, and the logic behind them. It’s an essential task that makes the next annual or bi-annual compensation plan review infinitely simpler. 

Implement and Communicate

The changes are ready to implement, the only thing left to do is unveil it to your sales team. The key to this going well? Communication. Be ready to put in the time to make sure any affected team members understand the adjustments. That means introductory meetings, Q&A sessions, and payout calculators. Making sure everyone has a good comprehension of the updates and how it affects them goes a long way toward making this transition a smooth one.

Benefits of the Pay vs Performance Framework for Sales Leaders

Sales leaders often face criticism and complaints from their sales team regarding the fairness of their compensation plans. If you’re a sales leader, the pay vs performance tool provides you with an easy way to show your team members why their compensation structure is fair. With just their on-target incentive earned and target achievement data, you can transparently and objectively show any concerned team members that the remuneration for their performance is fair. It also allows you to quickly simulate how much they would earn after reaching a certain target. Talk about instant motivation.

The pay vs performance tool provides you with an easy way to show your team members why their compensation structure is fair.

Benefits of the Pay vs Performance Framework for Sales Compensation People

For compensation managers, this tool gives you a simple way to audit new compensation plans by comparing them to existing or past plans using the company’s internal sales performance data. Regardless of your pay for performance philosophy and pay curves, this tool helps you easily and proactively identify unintended results, allowing you to perfect the structure before rolling out a new plan to the sales teams. For example, it becomes obvious that Alvin from the SDR team will receive a much fairer reward with this new compensation plan.

Keep Your Compensation Structure at its Very Best

We’re more than sure that your sales compensation structure is great, but you can always keep improving. This framework gives you an easy way to polish up your sales compensation plans and keep your sales organisation at the top of its game. When done right, you’ll have no issues in rewarding and retaining your top salespeople, reducing the churn of your average salespeople, and properly motivating your underperformers. That leaves you with a highly-motivated and talented team capable of driving your organisation’s growth and delivering on revenue targets.