Sales Compensation: Why Executive Compensation is All About Leverage
As the CEO of an expansion stage software company, your plate is perpetually full. Among other things, you’re focused on scaling the business, establishing a clear vision for the future, and (the topic of this post) hiring an executive team that can help you get there.
Of course, like most tasks an early stage company CEO tackles, none of those things are easy.
But let’s say you’ve found the absolute perfect VP of Sales candidate to run your sales organization. They’re qualified, experienced, and willing to take a leap of faith with your company. And, best of all, they possess the right balance of industry experience, management skill, and previous sales success. Hiring that person is a no brainer, right?
Well, sure. For the right price.
What if that potential all-star VP of Sales requests a salary-heavy compensation package that secures their financial future and mitigates some of the risk they’re taking by joining a company still in its infancy? Or what if they scoff when you present them with an equity-driven compensation package? Should you still hire that candidate, even if it puts your long-term financial viability and ability to scale at risk?
I think you know the answer to that question. But that quandary is a common one as expansion stage CEOs begin to build a true sales organization. No one wants to let the perfect sales leaders — whether they’re a VP of Sales or a rock star sales manager — slip through their fingers.
But regardless of the position you’re hiring for, the more you leverage compensation to results, the better off everyone will be. If that means turning away a candidate that doesn’t align with your compensation goals, so be it.
So what exactly should factor in to a VP of Sales compensation package?
It depends a little bit on your company, its industry, and the products it sells. But in most expansion stage software companies, a VP of Sales should be charged with all aspects of the company’s sales distribution model, the relationship and accountability of the sales and marketing departments, and driving (and ideally exceeding) quarterly targets.
In the end, they’re an executive — not a manager, director, or glorified field rep. As such, their compensation package must revolve around an equity stake in the business. And, as a recent VP of Sales compensation study by Phone Works revealed, that means factoring in things like:
- Meeting sales goals
- Meeting profit targets
- Achieving key corporate objectives
- Efficiently scaling and on-boarding sales team members
- Hitting personal MBOs
The bottom line is that sales executive compensation needs to be a confluence of salary, commission, and bonus — all of which reward those team members on the revenue results of the entire organization (or, in the case of a sales manager or director, the performance of their specific organization).
Now, that doesn’t mean you have to skimp on compensation.
Ultimately, you want to create an environment that encourages everyone to perform better and drive revenue. If they succeed in doing that, VPs of Sales and their team members should make a lot of money. You just don’t want to make the mistake of giving it to them before they do anything to warrant it.
Next week I’ll close out this series by addressing compensation plans for inside sales and lead generation reps. Stay tuned!
Side note: In the comments section of my last blog, one reader asked for a resource on compensating all of a growing company’s valued executive team members — not just their sales reps, managers, and executives. I may still write a blog post on this later, but in the meantime check out my colleague Firas Raouf’s excellent thoughts on that topic!