Reflections on Sales Rep Pay Frequently Revolve around Recurring and Often Seemingly Paradoxical Questions

Question 1: Are my sales reps overpaid?

This reflects that pay is based on costs and expenses.

Question 2: Does our pay scale motivate our reps enough?

This involves finding the magic number between the company's targets and sales rep's targets.

Question 3: Is our pay scale allowing us to recruit the best of the best?

What's important is how attractive the company is in the labor market.

Question 4: Which part of pay should be fixed, which part should be variable?

You have to formulate an equation based on cost constraints and the incentives the teams need.

Additional question: How do certain sectors pay their sales reps more than other sectors?

Is there a connection between the sector characteristics and the pay policies for sales reps?

These questions bring up:
- How Much: Pay can be used as a tool to boost activity.

- How: Recruiting the best employees is a constant challenge.

- Why: The pay scale should match our strategy and employee expectations.

Some answers to these questions:
- First, we'll tackle some of the ideas we have heard.

- Then, we will address which goals we can assign to a system of payment and which management reporting tools can help us meet these goals.

Three ideas on sales rep salaries:

We need to protect ourselves from these ideas that squelch any hope of changing the system. This is definitely a sensitive, even political subject. It's important to be able to respond to those who may resist change. We are proposing some useful hints to help you overcome the typical impasses.

Idea No. 1: Sales reps are only motivated by money

We have heard this on many occasions: "A good salesperson is a hungry salesperson." This statement is based on the idea that the motivation driving salespeople is completely different than that of financial or production managers. An observant eye can also see that those who agree are often "perfectible" managers, right? Finally, wouldn't it be easy just to cut a check to make the employees motivated? This idea would invalidate an entire portion of the manager's duties.

We should, therefore, beware of these preconceived notions that lead to either abysmal managerial tendencies or recruitment mistakes based on a specific sales rep profile. Let's not forget what motivational experts tell us. Following the reasoning of Maslow and Herzberg, pay - at least the fixed portion of the salary - is not a motivational factor; it's a potential source of de-motivation.

Breaking out of the box:

- Ask why some companies, such as many traded on the NYSE, only pay their salespeople a fixed salary.

- List the non-monetary sources of motivation for sales reps.

- Try to quantify a sales rep's motivation in terms of his/her salary by determining whether a 20% increase in pay would translate into a 20% jump in real motivation.

Idea No. 2: A good salesperson doesn't need a substantial fixed salary

Find the mistake (1^st case)

A welding materials manufacturer seeks a salesperson for one of its geographic regions in France. The company uses a recruiting firm that selects ten potential candidates, who are asked to come to Paris for the day. A decision will be made by the end of the day.
The decision is not easy, and by the end of the afternoon there are two excellent candidates remaining, Henry and Oliver.
One last question is posed to make the final decision: "What kind of fixed salary are you looking for?"

Henry gets the job because his number was lower.

This example shows a certain "signal theory" applied to sales rep recruiting. The company wants to choose the best salesperson, but how can it determine who is bluffing about their skills and motivation?
The idea presented here is that a "good salesperson" is always willing to accept a lower fixed salary because he knows that he'll reach his sales goals. On the contrary, the candidate who doesn't accept the risk must surely be lying about his real skills and motivations, right? Easy enough.

Breaking out of the box:

- Ask yourself if it is realistic to expect the candidate to be well-versed enough with his/her future company, its products, clients, competitors, and current circumstances to formulate an acceptable answer to the fixed salary question. You will probably arrive at the conclusion that the "signal theory" does not work unless there is full disclosure of transparent information on the process. In other words, a candidate proposing a salary below the poverty line is not necessarily thinking clearly if he doesn't know what the future conditions of the job will be!
- Ask yourself: "Who's bluffing?" If the "signal theory" is employed by companies, there's a good possibility that it will also be used by the sales reps. So, it is in the candidates' best interest to propose a relatively low fixed salary if they know it is one of the determining criteria for getting the job. They can always look for other opportunities during their trial period.

Idea No. 3: Our area of sales is very specific

"We have to attract the best salespeople." This is a laudable goal, as long as it doesn't turn into "we have to attract the best salespeople in our sector." Inside any given sector, we often see that companies are competing not only in the products and services market, but also in the job market. Companies want to attract the best...from competing companies. They do this thinking that this is the most rational and least risky choice. But, recruiting clones is the surest way to de-motivate sales teams.

Find the mistake!
Bernard was a corporate account manager for a leading industrial company. He left five years ago to work for a rival company whose market presence was ten times smaller.
At first, the competitor was thrilled that Bernard had so many contacts. The joy quickly faded once they realized that most of the clients remained loyal to the other company.
Furthermore, the original company just bought out its smaller competitor.
Bernard is back with his old colleagues. It was back to square one! At least for a short time, because, even though Bernard hadn't changed much, his pay stub had. This must be hard to accept for the company who let him go.

Breaking out of the box:
- Accurately define the skills that you are looking for from those you call "the best."

- Look for skills that don't exist in your market or company.

- Base your search for salespeople more on their skills than on their past performance within the same sector.