from Hacker News

Just another practical sales rep comp plan

by gtzi on 1/25/24, 6:33 AM with 36 comments

• by neilv on 1/27/24, 2:54 AM

  Why do sales positions tend to have performance-based compensation when many other roles in the same company are flat salary?

  Is it simply because the metrics are so obvious (i.e., attribute sales to the salesperson's individual performance), that it's easy compared to other roles?

  Is it because sales work is so close to revenue numbers, that more thought has been given to compensation, or it's thought of differently (like CEO comp)?

  Is it a belief that the personalities of salespeople in particular are motivated to perform better by the incentive alignment?

  Is it because performance-based can be a sweeter deal for high performers, which some historical salespeople managed to secure, and they're not giving it up? (Should SWEs be maneuvering to get "points" on the particular products they worked on, rather than it just being something they can mention when they beg for a promotion?)

  Something else?

• by DEF14A on 1/27/24, 3:13 AM

  I'm a rep at a big SaaS firm - no one says "OTC", whatever that is. It's OTE. Also, literally no sales org would ever weight an AE's comp more towards base and a VP's comp more towards variable - everyone is on a 50/50 split, and if anything the VP would have more guaranteed comp. No discussion of RSUs or options? Furthermore, I have never in my life seen a plan that withholds the final quintile of variable comp - that sounds horrifying and no experienced, high-quality rep would work at a place like that.

  Jason Lemkin's blogposts and videos on sales compensation are way more accurate than this.

• by matthewfcarlson on 1/27/24, 1:45 AM

  Perhaps I’m just not in sales and haven’t seen how complicated it gets. But they start the article with keep it simple and end up with a stepwise function with two different slopes and an excel spreadsheet to calculate it.

• by jamesdhutton on 1/27/24, 12:46 PM

  As others here have noted, the challenge with paying salespeople to close the deal is that you create perverse incentives. In enterprise software sales, the salesperson has every incentive to make impossible-to-keep promises about what the software can do. After closing the deal, the salesperson hands over to an implementation team, who try and fail to make the software do what the salesperson promised it would. The result is a failed implementation and an unhappy customer. I have often thought it would make sense to pay salespeople for a successful implementation of software, not just for the initial sale. I’ve never seen that done though. Would be curious to hear if anyone has successfully dealt with this challenge.

• by ralph84 on 1/27/24, 2:15 AM

  No. Decelerators and deals that pay $0 are demotivating and unnecessary. You can achieve the same net effect by properly setting OTE and quota without the demotivation.

• by dkokelley on 1/27/24, 2:34 AM

  I've only been in low stakes sales roles (outside of personal projects) so this comes from someone with very little "professional" sales experience:

  The good: setting a target comp that is realistic and explained (e.g. "I expect you to hit $200K 4/5 times with this plan.")

  The bad: plans with complicated rules (x% up to $Y in sales with a kicker + incentives for certain deal structures) can be demotivating and incentivize the wrong sales behaviors

  The ugly: some high-intensity salespeople might thrive on the chaotic and unpredictable nature of comp structures. I don't love the idea of hijacking the "gambling/variable reward" centers of the brain to get what you want out of your people. Be fair and simple.

• by fakedang on 1/27/24, 7:25 PM

  I'm surprised here. I thought there was software to manage this stuff? Software like Anaplan or Xactly or some SAP/Oracle/Salesforce product? The sales models provided in the article seem too simplistic.

• by xyst on 1/27/24, 8:21 AM

  Build a product that sells itself and thus there is no need to have a compensation plan, sales people, a VP of sales, and a sales organization.

  Reinvest the millions of dollars per month in sales org and reinvest in engineering.

• by nocoiner on 1/27/24, 2:48 AM

  I get the importance of hitting targets and all, but it seems like horseshit to me that the employee earns no commission between 0-20% of the target, and at 99% of target is at only 80% commission.

  Maybe someone with more of a sales mindset than I’ve got would thrive on this, but it feels to me a bit like a “heads I win, tails you lose” outcome for the company. Doesn’t really seem like you’d lose the motivating factors either by opting for a policy that errs toward the super generous in significant upside scenarios.

• by 0xB31B1B on 1/27/24, 5:39 AM

  Lots of folks in this thread talking about how this comp plan is BS/poorly structured. I don’t disagree, but IMO this is a result of salary/comp deflation in tech. We’re going to see more of these types of plans as companies try to pay reps 30% less while appearing to keep comp the same.