The Ultimate Sales Compensation Question

“Should sales reps be paid even more than you?” My friend, Kenneth Manesse Sr. asked this question in response to Inc.’sOverpaid article. “4 Things Every Entrepreneur Should Know About Sales.”

Before sharing two perspectives with you, let me tell you a short sad riches to rags story.

Once upon a time, there was a machine tool sales company considered by the industry to be the competition. Many said they had the very best sales team in the industry. This company leveraged state of the art sales and marketing technologies. With rolling sales forecasts, they continuously modified their unique sales and marketing strategies in concert with changing market conditions. Their entire operation supported customer centric selling.

The CEO treated his sales team with value. He spared no expense for sales enablement and support. Their budget was intelligent, not wasteful.

He built beautiful offices with a gorgeous conference room and full kitchen. A wonderful, round Italian grandmother cooked lunch for the team four days a week. Most nights, the sales team met at their stocked wet bar. They played together and they were a tight team.

The CEO was a proud peacock. He lived a good life. He owned a couple of million dollar homes and other properties where the sun shone when you wanted it to.

The top salesperson was earning more than him and another approached his salary. All of the salespeople earned six figures. The president hired a new CFO, a hatchet man to cut compensation.

One evening he called the sales team and VPs into the conference room and killed the golden geese with this statement: “You’re all overpaid. I can replace you with cheaper people and do the same job.” Everything else he said was ancillary.

Within one year, every one of his salespeople and VPs were gone. He hired new, untrained people for much less money. Within two years from his fateful speech, he went bankrupt and lost everything. In case you were wondering, I was the Sales & Marketing VP and the last to leave.

A side note: Their commission rate was actually lower than the industry standard. Surprised? The sales team understood and appreciated the value of our large investment in sales support and sales enablement.

Two perspectives:

1. Suppose that you, the entrepreneur, CEO or executive earns $500K and your top performing sales person earns $600K. Would you rather have three salespeople earn $200K each or six salespeople earn $100K each? Suppose your entire sales team collectively earns $2.5 million annually. That is five times your income. What difference does it make how their income is distributed?

2. Suppose you need technology or manufacturing equipment with a $5 million price tag. This technology or equipment will improve productivity by 30%, reduce costs, improve your bottom line and give you a competitive advantage with a one-year ROI. Would you not purchase it because it costs ten times more than you earn?

“In nearly every high-performance, publicly traded company I’ve worked with, the top salespeople’s income routinely rivaled or exceeded that of the CEO.” John Treace (from Inc.’s Article)

Salespeople are money machines. Without sales, you have no company. You need good salespeople. And like good technology and equipment, good salespeople cost good money.

Golden goose with golden eggFocus on the big picture, your vision to be a successful company. Build a top performing sales team. Build a money machine. Build it wisely with an intelligent compensation package and give them the support they need to be the best sales team in your industry.

Breed a flock of  golden geese and enjoy their golden eggs.