What is combination salary plan?

A sales compensation plan outlines your employees’ base salary as well as the company’s commission and incentive program. The commission structure should incentivize employees to reach their objectives in order to earn a deserved reward.

There are many types of compensation structures to choose from, and sales leaders should implement a plan that aligns best with their team’s specific needs.

First, it’s important to understand where and how sales efforts fall short and create a plan to address these shortcomings with enticing rewards that drive results. Using tools like Pipedrive can help you pinpoint those areas that are lacking, so you can effectively use sales commission to promote hard work.

Sales compensation plans vary depending on your team's structure, budget and goals.

For example, one company might offer a low base salary in combination with a hefty commission package, while another may provide a mix of a medium-sized salary, competitive targets and career growth opportunities. What kind of compensation plan you decide on all depends on the product, process, clients and company culture.

There are several factors you need to consider when drawing up your team’s compensation structure. Here are some questions to ask yourself when mulling over your sales commission structure:

• What are the goals you have for your sales team?
• What are your company's overall goals?
• What revenue do your salespeople bring in?
• How much of your budget can you afford to allocate to compensation packages?
• How much are your main competitors paying their reps, and are you prepared to make your reps a better offer?
• If your reps are working in-house, what is the cost of living where your company is based?

Understanding expectations makes it easier to build attractive compensation packages that will appeal to high-quality candidates, as well as your top-performing employees already on the payroll.

First, let's look at some important terms you'll need to know when creating compensation plans.

Some compensation plans require that a new customer stays with your company for a period of time before a rep is entitled to their bonus.

If a customer churns before the period is up, you can include a clawback. When this happens, the sales rep will have to return the commission they earned on the sale. Clawbacks are a helpful way to incentivize reps to focus on customer retention and deal quality over quantity. They also act as an incentive to stay with your company in order to reap the benefits of their sales commission.

OTE’s are a realistic goal of what a rep will earn if he/she performs well and achieves set objectives.

A rep's OTE is a sum of their base salary and commission earned from closed deals. For example, a sales rep may be given a base salary of $60,000 and expect to reach $40,000 in commission in a one-year period. Therefore, their OTE would be $100,000.

It’s unethical for companies to advertise unrealistic OTE numbers to attract reps if they don’t plan on compensating them at that figure. If you plan on doing this, it won’t work in the long-run, and you’ll find that quality salespeople won’t join, or stay on your team. OTE’s should be as practical of a projection as possible.

Incentives and contests are also compelling ways to reward top performers.

Incentives are often paid out as a dollar amount but can be presented as other reward types like dinners and excursions. For example, team leaders might set up a contest where the first sales rep to close 50 deals for the month earns a $1,000 bonus. Or, the first team to upsell 100 subscriptions will get a collective weekend away at a spa.

Sales accelerators are used when a rep closes more deals than their quota requires. They are a great way to entice your top-performing sales reps to keep selling if they’re running hot.

An example of a sales accelerator might be a rep closing 15% above their quarterly quota. To reward them, the company will pay an accelerator fee for each percentage above their required quota. For example, if a sales rep closes 115% of their quarterly sales quota, the rep might earn a 12.5% commission on the extra 15%. If they closed $10,000 worth of extra sales, their accelerated commission will be $1,250.

Sales decelerators, then, penalize reps who don’t reach their quota by paying them less compensation.

Here’s an example of what an accelerator/decelerator structure might look like for a sales rep:

A combination compensation plan, referred to as pay mix is the ratio of base salary to target incentives that make up On-Target Earnings (OTE). For example, a 60/40 pay mix would be a 60/40 base to commission split, which means that 60% of OTE compensation is fixed base salary, and 40% of OTE compensation is Target Incentive (TI), or variable pay. A more aggressive pay mix formula tends to be 50/50 or 60/40, while a less aggressive range tends to be 90/10, 80/20 or 70/30 compensation plan.

While the term “pay mix” doesn't sound overly intimidating, how you determine pay mix policy for each sales role shouldn’t be a directionless game of darts or pin the tail on the donkey. Getting your pay mix strategy right can mean the difference between hitting or missing your team's quota—and keeping reps content and motivated to sell.

There are a number of factors that go into your pay mix analysis, all of which directly contribute to how aggressive your pay ratio should be. These elements include sales team member roles, the type of selling each person is tasked with, and the type of structure that is going to motivate them to sell. Of course, the length of the sales cycle, transaction volume, customer type, and other components all help determine the optimal pay mix.

To get started on the right foot, it's important to recognize that determining pay mix should be rooted in the understanding of how your ratios will dictate the working styles and activities of your people. Remember, this is how people expect to earn a living to support themselves. The numbers you set will greatly impact how your team goes about their business. It's important to review all of your pay mix options before making any decisions.

Take, for example...

0/100 - This compensation mix is basically pushing your reps to work heads-down and independently. Stress management becomes an extremely difficult task under such circumstances, and weekly payouts might be required.

50/50 - This compensation mix is often a good starting point and allows organizations to exercise influence while giving reps enough security in their portion of fixed pay. With half of their earnings being variable, reps are still motivated enough to go out and sell.

60/40 - This base to commission split is a pretty standard ratio across industries. This pay mix best serves as an incentive or motivation for increased sales performance. 

70/30 - This salary ratio is less aggressive than some mixes and is common when reps are selling a highly complex or technical product. This is also common for sales reps who are training newer reps.

90/10 - On the other end of the spectrum, there is little motivation tied to such a compensation mix plan. That said, it has its place among admin staff, with their small portion of variable pay helping to connect them to the team and its success.

How do You Select the Optimal Pay Mix?

The factors mentioned above should certainly guide your decision, but one key question remains: “What is the rest of your industry doing?” How are other companies in your local area compensating their people? How are companies of similar size paying their reps?

Benchmarking is the answer you're looking for. It gives you the necessary insights into how other companies are structuring their pay mix policies. Once you’re able to compare how you stack up, you’ll have a lot more confidence when it comes time to pull levers on your compensation strategy.

With a sales compensation data benchmarking tool, you’ll be afforded transparency into the levels at which other companies are setting their numbers, what percentage of reps are making their quotas, and average sales pay mix within their organizations.

Typical Pay Mix by Sales Team Role

Generally speaking, jobs with the most influence on the purchasing decision should have a more aggressive pay mix. In other words, when you think “pay mix,” think persuasion—and consider just how big of a part each role plays in persuading a customer to purchase.

Account Executive

No single role persuades more than the Account Executive, as it is their responsibility to close the deal. Their pay mix should reflect this and should be aggressive enough to encourage them to attack new business opportunities.

In terms of benchmarking among Xactly customers, we see a typical Account Executive compensation mix at 50/50 or 60/40. The percentage of pay at risk also depends on other factors that make your product harder or easier to move. For example, a well-established brand is easier to sell than a lesser-known player. In this case, the pay ratio for reps working with a well-known company may be less aggressive than the pay mix of those working with newer firms.

Sales Development Rep

There is no denying that the Sales Development Rep plays a key role in the sales process by bringing in new opportunities to sell. But, going back to persuasion, the Sales Development Rep has less influence over the final result, and thus, their pay mix should be less aggressive.

Sales Specialist

The Sales Specialist falls in the middle of the Account Executive and the Sales Development Rep. No, they aren’t the one closing the deal, but if they’re the final presenter of a demo, their activities are closely tied to persuasion. So, their pay mix should be less aggressive than the Account Executive, but more than that of the Sales Development Rep.

Customer Success Rep

Because they work with existing customers and are primarily concerned with their satisfaction, the Customer Success Rep’s role isn’t as risky as that of the Account Executive who is tasked with bringing in new business in order to get paid. So, the Customer Success Rep should have a less aggressive pay mix formula, with less upside as well, which we will detail later.

Sales Manager

The Sales Manager is responsible for the entire sales team, above all else. One component of that is coaching reps to close more business rather than closing the business themselves. They indirectly play a part in the persuasion process, so a manager’s pay mix is typically less aggressive than the reps who report to them.

The concept of variable pay is powerful, which means it can greatly help in the motivation of your team, or it can greatly hinder it. Of course, it all depends on the combination compensation plan policy—allow for too much variable pay and reps operate independently, and with blinders; you’re almost de-valuing the importance of necessary administrative tasks, and the need for reps to work with the rest of the team. Too little variable pay, and reps just aren’t motivated enough given their contentment with a guaranteed salary.

Pay at Risk

Whenever we're talking about variable pay, you might hear the term “pay at risk” used instead. As the name suggests, reps have a portion of their pay “at risk” of not being distributed should they not achieve their goals. If you’re putting a rep’s pay at risk, you should also offer “upside” as a reward for exceeding goals.

Upside (Leverage)

Upside describes the amount of pay available when reps surpass their goals. Instituting upside is a valuable practice, but does require additional planning. When it comes to upside, the same variable pay logic applies: those roles with the most influence on the purchasing decision should have higher upside opportunity; Account Executives will have more upside than Customer Success Reps; Sales Managers won’t have as much upside because they aren’t as focused on closing business.

Pay Mix Ratios Can Help Combat Employee Turnover

A pay mix ratio that aligns with company goals can also help combat high turnover rates among a sales team. Aligning on different tiered compensation structures helps communicate the opportunities to advance within the team, and they won’t feel as inclined to look for outside opportunities.

Pay mix is a difficult thing to get perfect on the first go around—and is definitely not one of those things that you can just set and forget. You’ll need to have the means to clearly track your team’s performance, along with the insights that will give you the confidence to make positive changes for the future. Learn more about accelerating your Sales Performance Management Journey.