Establishing the compensation grid for salespeople appropriate for a salesperson takes much more into consideration than one might think. Many organizations “take care of it” or estimate salespeople’s pay and while this can work for smaller businesses or companies with simple organizational structures, it is not as effective for growing or larger organizations.
Eagle Rocket works with companies that want a trusted, responsive sales expert to advise or help them on issues like this – understanding how to set salaries and variable pay
” The best way to establish compensation for a salesperson is to evaluate the role without the employee.” “That way, you assess what the job is worth to the company, and not what that particular person should be paid – that’s the last part of the equation.”
A very simplified approach to help set the compensation grid and determine salespeople’s salaries like this can help start the process (read a more detailed four-step approach to defining salary / compensation levels at the end of this article)
✅ Draft job descriptions for all your sales positions, then,
✅ Evaluate / rank the positions by level of responsibility and
✅ Place them in a compensation grid, grouping positions that have relatively equal weight into a classification or job level.
Compensation around a market salary should be what an experienced and high-performing salesperson is paid. Entry-level salespeople can be paid 75 to 80% of the market rate (depending on various factors) and very experienced employees would reach at most about 120 to 125% of the market rate. And everyone else should be spread across this compensation grid: based on experience, knowledge, performance and perhaps what they had earned in previous similar positions and what they had negotiated to enter the company.
There are no established regulations or standards regarding the setting of remunereratin grids, there are some basic and usual steps to do it. The key elements of establishing and maintaining pay scales include:
- Obtaining commitment and participation from management and/or the leadership team in establishing the company’s minimum and maximum compensation.
- Using the company’s compensation philosophy to create compensation gilles that support that philosophy (will you pay relative to the market or not)
- Determining how often you will adjust increases due to inflation or market changes in the future.
Think about fairness in the salespeople’s compensation grid
Pay equity is also an element to take into account.
“Employers should pay particular attention to internal pay equity when determining what they should pay.”
If you have sorted all the salaries you pay for your salespeople in the same position, assess whether the amount of compensation corresponds to experience, expertise and performance. Then determine the reasons for this inequality. If you notice a trend of inequity between Women and Men.
You want to remedy inequity with salary adjustments before someone discovers that your compensation appears discriminatory.
If you are a larger organization starting from scratch on this type of project,
Then you consider the individual, where they sit in your ranges related to experience, skills and performance and determine how their compensation should compare to the external market as well as to your internal employees.
It’s a complicated process, especially for those who are not familiar with the many details that go into setting salary and compensation levels.
Understanding the salespeople’s compensation grid.
It is important to use the most relevant information possible so that it better matches the job you are evaluating. Criteria to consider include:
- Job summary: it should be as close as possible to the actual position.
- Industry: If you are a manufacturer, you should look at manufacturing costs. If you are a bank, you should consult general industry data.
- Location: national information can be useful if you are a national organization, but the most relevant information will be the city/state in which you live. For example, a person in Paris or Rouen will not have the same compensation.
- Employee size: This is also in ranges. You may find that your 50-employee company pays less than a company with over 1000 employees or the opposite.
How to set compensation levels:
Step 1: Establish the overall compensation grid
Determine a minimum and maximum salary for the company. The minimum will be for the first and lowest profile and the maximum will be for the last and highest profile. Use a list of all the company’s jobs or job groups and current salary survey data related to those jobs to set these parameters and incorporate the company’s compensation philosophy to lead, underpay or pay at the market. (Paying at the market means your midpoint will match the average salary for that position; underpaying on the market will set a midpoint below the average salary for that position; leading the market will set a midpoint above the average salary for that position). A pay scale will generally range +/- 15 to 20% from the midpoint, but any range the employer deems appropriate is acceptable, and ranges can be different depending on the salespeople. For example, if your lowest paid position is an sdr and you want to pay at market and salary survey data for that position indicates an average salary of €25,000, a 15% spread for that job would be €21,250 (min), €25,000 (midpoint) and €28,750 (maximum),
Step 2: Establish a range by grade
Set a minimum and maximum for each position The maximum of one grade may overlap the minimum of another and vice versa. A common spread is +/- 15-20%, but it can be set to whatever the company deems acceptable. Many companies will average the midpoints (from salary survey data) of the jobs in that grade to help establish a range for that grade.
Step 3: Create a pay table
Using the sum of the minimum and maximum, calculate the midpoint by simply dividing that sum by two ([Max + Min] / 2 = Midpoint). You have now determined the key elements of your compensation grid.
Conclusion
Determine how often the compensation grid will be reviewed and how often adjustments will be made. Annual projections of salary increases and pay structure can be used to adjust as needed. Pay scales are generally reviewed every one to three years.
A typical method to calculate whether a negative impact exists in compensation schemes is to use a multiple regression analysis. However, using such statistical analysis is complex and beyond the scope of this guide.
