The sales compensation formula is the flashy member of the seller’s remuneration package, but the base pay is often the largest component of the total compensation.
Consider these questions related to base pay:
- Do organizations provide a base pay to sellers?
- What is the typical pay mix: base pay vs. incentive?
- How is base pay managed?
- Do salespeople get annual base pay increases?
The Alexander Group investigated these questions and many more in the “2020 Sales Compensation Trends Survey.” With more than 120 sales teams reporting their practices, the results tell a story.
Do Organizations Provide a Base Pay to Sellers?
The simple answer is yes, sales departments provide a base pay to their sellers: 79% of survey respondents provide a classic base pay with no guarantee or draw, 10.1% provide a base pay with a recoverable draw and 6.7% provide a base pay with a guarantee. Only 1.7% provide no base pay, guarantee or draw. That pretty much sums it up: Sales departments provide a base pay to their sellers.
However, few “producer” employers participated in the survey. We would see very different responses from organizations that have producers such as real estate agents, financial advisors, manufacturer representatives, annuity sellers, security brokers and traders. We would see the incidence of “incentive only; no base pay” much higher for such jobs.
What Is the Typical Pay Mix?
For the primary sales job, the typical pay mix of the survey participants is between 50/50 and 60/40. Pay mix is the division of the target total compensation into two components: base pay and target incentive. A 70/30 pay mix would have a base pay portion of 70% and a target incentive portion of 30%.
However, pay mixes vary widely. The survey results show a range of practices, as seen in the figure below.
How Do Organizations Manage Base Pay?
Most organizations have a job grade structure where jobs are grouped by “value.” According to the survey results, three-fourths of the organizations use a grade structure for sales jobs, either a dedicated sales grade structure or human resources slots them into the corporate grade structure. One-fourth of the participants have no grade structure.
Most organizations have a pay range for each job. This provides the low, middle and high pay opportunity for the job. The most common practice is to use a target total compensation range (33.9%), the second most common practice is to have a base pay range (33.1%). The corporate base pay range structure is used by 17.4% of respondents.
Do Salespeople Get Annual Base Pay Increases?
As history demonstrates, most organizations provide a base pay increase to sellers on an annual basis. Managers are given a budget. Pay increases (within the pay range) are tied to merit.
Base pay is a large part of the sales pay budget. Follow these steps to ensure effectiveness:
- Use a grade structure to group jobs of like value.
- Identify target total compensation.
- Determine pay mix.
- Provide a pay range for increases.
- Allow managers to allocate pay increases based on merit.
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