RevOps Co-op Weekly #111 - Why 90% of Leaders Don’t Trust Their Compensation Structure (And How To Build One They Do Trust)
RevOps Co-op provides resources, content and community for those who ❤️ revenue operations. This weekly newsletter features collected tweets, posts and thoughts on a variety of RevOps topics. We also have a private Slack community with > 6500+ RevOps pro’s from companies like Slack, Lyft, Clari, Miro and more 👉🏻 click here to join.
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Why 90% of Leaders Don’t Trust Their Compensation Structure (And How To Build One They Do Trust)
The team at QuotaPath has some wicked knowledge when it comes to compensation plans.
Compensation plans can be a challenge for even the best-meaning organizations, but without knowledge of what’s happening in the market, setting one up can sometimes feel like shooting in the dark.
Because of this, QuotaPath created a report on 2022 compensation plan trends geared towards new business sales reps. By building on the report they created back in 2020, this updated version breaks down the trends, standardization and provides insight into how your numbers compare to others.
The Survey
“We ran a survey where we asked over 300 people working in sales, RevOps, and finance a whole bunch of questions about their comp plans,” says Graham.
The report breaks down to about 75% of respondents coming from SaaS with about 85% based in North America.
“We wanted to provide some hard numbers, how other folks are doing it and what we think is the best way to do it,” he says.
Trust has Gone South
“There is a lack of trust in sales compensation across sales ops, across finance, and across sales, sales reps, ops, and finance,” Graham says. “90% of sales leaders don’t trust their sales comp structure.”
Let that sink in.
Couple it with the fact that 75% of sales reps don’t trust that they’ve been paid fairly and that 80% of companies have paid reps incorrectly.
It’s terrible to see these stats as a RevOps pro like Ryan. When RevOps is the fountain of trust in an organization, not having sales onside is a major game-ender.
Average Comp Plan
Graham has been asked about the average comp plan a lot, and the answer is that there’s no such thing. No two plans are the same.
“Base salaries are 50% of the on-target earnings,” he says. “The quota period is quarterly, based on ARR (annual recurring revenue) and is between 4 and 7 times your OTE. 50/50 is the most common pay mix”
“The data lines up with what we would have expected,” he says.
Everyone Gets the Same Plan
Okay, no—not EVERYONE gets the same plan, but Graham and Ryan are proponents of the standardization of compensation.
“What we mean is that everybody in the same role has the same base salary on target earnings and quota,” Graham says. “This is more standardizing the structure of your plan. 86% of organizations said that they do.”
That’s up from 69% in 2020.
“Non-standard comp plans leave room for implicit bias against women, people of color, and underrepresented communities,” says Ryan. “With standardization, you can better compare people based on the work they’ve actually done.”
Clear, unbiased, understandable, and future-focused. Sounds good, doesn’t it?
Ownership of Plan Building
“There are the people who own it, the people responsible for it, and then there are those who are involved within it,” says Graham of comp plan development.
In the smallest sales teams, generally sales leadership builds the plan. As the sales team grows, this shifts to RevOps and finance.
“I think RevOps acts as a healthy mediator in the process,” says Ryan. “Three people or four-plus people being deeply involved is super helpful.”
“If it’s just one department building the plan, the average confidence is a 3.1,” he says. “You add in another department, it becomes 3.2.”At a third department, it comes out to a 3.5.
But at a four? It drops back down to the level of one department.
More $ for More of the Right Things
In terms of SaaS, “Finance people are happy to pay you more commission if you are able to lock that revenue in for longer,” says Graham. “They want to pay you for the things that actually move the needle.”
Ryan agrees, adding that playing with various elements that are good for the business could add points to the reps’ compensation.
“I often see extra commission percentages for closing deals earlier in the quarter,” says Graham.
90% of sales leaders don’t trust their comp plan. As noted, involving other departments helps. It’s also important to note how often a plan is rolled out as small tweaks throughout the year typically creates more trust than constant overhauls.
The report also notes that plans based in software are trusted more than those built in spreadsheets. Plus, if reps see and understand their plan, they automatically trust it more.
“Could your rep explain their plan to their mother or grandmother?” asks Ryan. “If you wrote your plan from scratch and only had three rules, could you do it? Some people have comp plans based on percentage of meetings attended or just comical stuff like that.”
A Free Planning Resource
QuotaPath has created a completely free, non-gated and customizable resource called Compensation Hub: it’s a seriously useful platform to discover, compare, build, and customize compensation models.
🗣️ From the Community 🗣️
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RevOps Co-op provides resources, content and community for those who ❤️ revenue operations. This weekly newsletter features collected tweets, posts and thoughts on a variety of RevOps topics. We also have a private Slack community with > 6,500+ RevOps pro’s from companies like Slack, Lyft, Clari, Miro and more 👉🏻 click here to join.