Market Pricing Sales Compensation: A Combination of Science and Art
Dennis Spahr, Vice President – Sales Effectiveness, Sibson Consulting
Market pricing sales compensation is a combination of art and (inexact) science. Or, as a former colleague once noted, it’s reminiscent of “Goldilocks and the Three Bears.”
Even if you communicate the third message, there are often disagreements about how the data was collected and who the market peers are. Nevertheless, market pricing sales compensation is something that can help sales organizations make good hiring and pay decisions. Companies that are most successful at market pricing understand their sales organization and its pay philosophies, set realistic expectations, follow a consistent market pricing process and are perceptive enough to bring a little art to the science.
Understand Your Sales Organization
Successful market pricing begins with a clear understanding of your sales organization and its pay philosophies. If you don’t already know the answers to these questions, you need to work with your sales leadership to get them:
Set Realistic Expectations
Gathering and presenting competitive sales compensation data can be enlightening, but because there are limitations to market pay data, it is important to set realistic expectations. Understand (and communicate) what market pay data can and cannot do for your organization.
Competitive market sales pay data can provide:
Competitive market sales pay data does not consider:
Follow a Consistent Process
The science part of market pricing requires you to follow a consistent process when you gather and ultimately present market data. The illustration below presents a process that will result in a clear understanding of your sales organization, let you set realistic expectations and ultimately provide the best possible match of your organization’s pay levels versus market pay levels.
|Clearly Define Job Roles within Your Sales Organization||
|Match Internal Roles to "Market Benchmark" Roles||
Gather Market Pay Data for Job Matches
|Match Incumbent Data to Market Pay Levels||
|Lather, Rinse, Repeat||
Source: Sibson Consulting
Bring a Little Art to the Process
Armed with a good understanding of your sales organization, realistic expectations and a consistent process, you can rest assured that the market data you present to your organization is sound. However, when it comes to actually setting compensation levels, you will want to use your artistic side. Market pricing is only one piece of the puzzle, so you need to consider additional factors such as:
Internal knowledge of competitor sales compensation plans and levels: If many in your organization previously worked for your biggest competitor, use their knowledge of the competitor’s pay plans and levels.
Interview data and recruiter information: What are the pay levels of the candidates you are recruiting? What do recruiters say the market pay levels are?
Supply of talent: While current economic conditions may favor employers, there will still be times when your sales organization needs new talent. Remember the old economic law, “if supply is tight and demand is high, prices will go up.”
Dennis Spahr is a Vice President with Sibson Consulting, a division of The Segal Company in Chicago. Dennis specializes in sales force effectiveness. He can be reached at 312-456-7905 or at email@example.com.
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