Over the past 9 years, we’ve seen compensation plans evolve dramatically from an all-commission model to a 50/50 split, with base paying increasing over 30% in a short timeframe.
The best comp plans that we’ve seen focus on creating factors that maximize the incentive for the employee while ensuring that the business can efficiently handle the expense. In this blog post, we’ll focus on SDRs who are new to the workplace and, based on what we’ve seen (and if they’re going to be good sales reps), are motivated by $. So focusing on accelerators and having a higher commission base than salary is the best starting place. Remember that your SDR recruiters are young, so if you set targets too high and create of culture of “losing”, morale will suffer and they’ll eventually leave, costing you your AE bench.
Below, we’ve laid out the need to consider components of a compensation plan and the basic building blocks to create a compensation plan yourself.
If you’re interested in skipping ahead to our 2020 compensation plan template click here.
Use incentives to your advantage
Compensation plans are important because they lay out the differentiating incentives your company provides versus a candidate’s other opportunities. Building effort-based incentives into your compensation plan gives your mid-tier reps something to aspire to, while keeping high-tier reps from moving on because they’re being compensated fairly for their time.
Allow time to ramp
Creating a ramping schedule allows reps to have attainable metrics for the first quarter of their tenure. This allows your finance team to forecast accurately, as you’re not putting a heavy burden on a new rep and allowing them to train and shadow without fear of missing numbers. It also provides the rep with a taste of success early into their new role, giving them incentive to keep moving into accelerators and bonuses as their goals grow.
Keep it simple
Having reps constantly coming to finance or doing shadow accounting to define how much they should be paid is taking them off the sales floor. Having clearly communicated compensation plans drives the right behavior to hit known metrics instead of creating a culture of fear and instability. The more an individual knows about how they’re being compensated, the easier it is to run Sales Performance Incentives and other culture boosters on the floor.
7 pieces of a comp plan:
Determine the appropriate amount of compensation based on title, job responsibility, and level of experience. This salary will be the number paid to the new hire regardless of metric attainment. Across the nation for an SDR we’ve seen this number as 60% of desired compensation before commission.
Commission would account for the other 40% of the OTE (On Target Earnings). For SDRs, the best results for businesses come when they’re focused on appointments and new opportunities. Appointments is the volume piece of the plan to keep urgency high and creating opportunities is the keep quality high. In the attached sample compensation plan, we show the 40% divided up between two metrics: appointments set and opportunities created.
Although SDRs are not responsible for closing deals, we’ve seen a quarterly bonus included in compensation plans for deals closed. This ensures reps who are being measured on appointment setting and opportunity attainment are incentivized to bring in quality deals that add revenue for the business. Most often we see this bonus come in at about 10%.
A ramping period allows you to train your new hire and give them achievable metrics while also allowing for proper business forecasting. In the attached example, we show a full ramping quarter where the monthly metrics increase from 0% the first month, to 50% the 2nd, and a full monthly quota for the 3rd month. From then out, the rep is considered fully ramped and will carry the 25% of their annual quota per quarter.
Quota is the actual metrics required to achieve the On-Target-Earnings laid out in the compensation plan. These numbers can be decided based on backwards math from team or office quotas. If the original commission is divided into different weights based on metrics, then those weights will apply here as well.
Getting into accelerators should be the goal of every single sales rep. Accelerators give the rep incentive to exceed their number – and then keep exceeding. The original hurdle of 100% is over and now for every 25% over 100 their payout goes up nominally. This ensures successful reps stay successful and discourages sandbagging. A clear accelerators layout in a compensation plan can help win a candidate over when competing against a similar base pay.
Sales Development Representatives are not often offered equity due to the entry level nature of the position. If you’re interested in learning more about equity by position read our guide here.
To help you create your compensation plans, we’ve included a basic template based on your region and the compensation data we’ve seen over the last year. As a reminder, this is a simple template to help guide you in creating an effective compensation plan. Your Betts Recruiter is always a resource for you when creating compensation plans and finding your next rockstar hire. Interested in hiring today? Contact us here.