The team at QuotaPath has some wicked knowledge when it comes to compensation plans. The real-time insights platform specializes in making commissions and payouts easier organization-wide, so it’s only natural that they’re experts in the space. The company’s Chief of Staff, Graham Collins, and Sr. Director of RevOps, Ryan Milligan come with a load of experience in creating and assessing compensation plans, too.
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.
“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 fromSaaS with about 85% based in North America.
It’s more than just the structure or the base variable split. The survey questions also touched on motivation, who owns comp plans, how much they are trusted, and why a good plan is important.
“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.
“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.
“How are they going to trust you when you’re building an outbound process for them?” asks Ryan. “How are they going to trust you when you’re thinking about territory design?”
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.
“It’s an incredibly important relationship,” says Graham of Sales and RevOps.
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”
These average elements don’t see a shift based on product sold or contract length.
“The data lines up with what we would have expected,” he says.
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.”
He adds that this makes you a much more attractive employer because you can show potential employees the baseline on which people are operating. It also allows for a clear, unbiased view of the path upwards and establishes that it should always be based on job performance.
“You’ve spent all this money to hire, train and ramp a rep,” he says. “Having them feel like they’re treated fairly and trusted is massively important for us overall.”
Clear, unbiased, understandable, and future-focused. Sounds good, doesn’t it?
“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.”
On the flip side, Graham noted that the survey highlighted when RevOps built the plan independently, it had the highest likelihood of being trusted, but also indicated the highest likelihood of not being trusted. This happens because RevOps works as an intermediary, but can also be pulled in too many directions in an effort to please everyone. Therefore, it takes input from more than one department.
“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.
No matter who is involved, it’s crucial to ask account reps what they think about the existing plan. Through this, Ryan says you’re not making promises, rather you’re seeking input and common desires. Explaining the financial constraints of the business to reps helps reduce the tired old refrain of “Oh, finance doesn’t want to pay me more.”
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.
At the same time, Graham agrees that young companies need to be flexible.
“With a focus on making sure that you’re building it right so that you don’t have to change it every quarter,” he says.
Flexibility also includes looking at outlier sales. As an example, if a dream deal comes through, ask finance if they're willing to pay for it. If they aren’t, then the plan needs to reflect that before it ever happens.
“It’s like warning labels,” Graham says. “Anytime you see a warning label, it’s because somebody did that.”
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.”
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.
“We’ve built out some of the most trusted and transparent comp plans and give you the ability to actually model those plans based on specifics about your business,” Graham says. Bookmark it and use their growing list of plan types to customize new plans by adjusting variables within the tool.
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