Technical founders and entrepreneurs can easily overlook the coin-operated nature of salespeople. Why? Because they aren’t salespeople, they’re product people and they’re just not wired the same way.
Founders might be motivated by changing the market, popularizing a product, or just proving they are right. Salespeople, almost all the time, are motivated by their compensation plans, so the compensation plan should be the de facto expression of what you want them to do and how they should spend their time. Ergo, as mentioned in this post, you should get them done before kickoff. And put a lot of thought into them.
Why? Because a typical salesperson will spend the whole weekend after you give them their comp plan in Excel modeling how much money they will make under various scenarios. I’d also say to make them as simple as possible both to make it clear what you want salespeople to do and to avoid the inevitable unintended consequences that often accompany complexity.
One huge question is whether comp plans should be capped. Almost all salespeople would say no. Part of the reason they’re playing the game – particularly at a startup – is for the lottery ticket. Think: while I know my on-target earnings are $250K, I want to have a shot at earning $1 or $2M – that’s what drives me to work those killer hours. So while I recommend leaving comp plans uncapped, I also recommend that management model the full range of scenarios and, for example, accelerate rates in the 100-250% of plan range but to greatly decelerate them after that.
You can always hedge your bets in the compensation plan terms and conditions (e.g., plan can be changed at any time to correct for errors or unforeseen circumstances), but if you actually use that language the whole salesforce will know and you will quickly lose the lottery-ticket value in your comp plan. It is far better to put some more thought into the plan on the front-end. I know one guy at a startup who did a $10M deal off a $1M quota and received only a fraction of his stated comp. Because he didn’t want to burn bridges, he just quit. But in this scenario, everybody loses.
Outliers, however, can take several forms. I know one sales manager who groups salespeople into three buckets:
- Those who clearly understand their comp plans. They sell what’s incented, when it’s incented, and make the most money per sales dollar.
- Those who mostly understand their comp plans. Those who do a good job following the plan incentives, but not a perfect one.
- The “independently wealthy” who seem to pay no regard to the incentives in the comp plan
I love bucketing reps in this way both because it’s funny and it immediately prompts an important question. Why are these reps not following the plan? Perhaps it’s just sloppiness or stupidity. Or perhaps there is more going on. My advice is to analyze reps in this way, show them that if they had sold different products at different times how their pay would have varied and then ask them why they didn’t. While some people invariably just miss the point, you might also discover “good reasons” why your people aren’t following your plan: maybe it’s too complicated and they don’t understand it, maybe they don’t think the higher incentive offsets the additional risk of selling a new, strategic product.
Or maybe they truly are independently wealthy and just doing sales for fun. But I doubt it.