Return to Article Archive  |  E-Mail Page  |  Print Friendly Page

Getting Around the Lack of Credible External Benchmarks

By: J. Mark Davis, Managing Principal, Valitus Group, Inc.

The process of establishing a competitive target pay level for Sales jobs tends to get a lot of air time. HR folks often spend countless hours searching for or culling through available survey data, while their Sales counterparts spend a lot of time debunking the survey data that HR provides as being out of touch with the realities of the market. Sound familiar? Two mistakes are being made in this scenario. The first is HR’s over-reliance on survey data and the second is sales management’s over-reliance on the information they glean from the “street.”

The target cash compensation (TCC) amount reflects the economic value of a job. As such, it is a critical decision point in the design of a sales compensation plan. TCC is the annual cash compensation amount paid for achievement of expected levels of performance (i.e., 100% of quota). TCC is comprised of two components: 1) base salary at the midpoint of the salary range and 2) the target incentive compensation (TIC) earned for performance at 100% on all performance goals or quotas.

There is frequently an unproductive preoccupation on the part of Sales and HR executives with determining what the competitive labor market pays for a given job. It is unproductive, in part, because all too often, credible external survey sources or benchmarks simply do not exist, particularly on an industry-specific basis. It also is unproductive because, in the process of searching for hard-to-find survey data, other critical inputs to the TCC discussion are often overlooked.

Key TTC Inputs

There are a number of potential inputs to establishing an appropriate TCC amount, including:

• Current and past TCC levels – Consider not only the current TCC level of a job, but the historical context as well. How long has the current TCC been in place? How much has it increased over the past three to five years?
• TCC levels of other jobs – Look at TCC levels for other similar jobs as well as jobs that are both at a higher and lower level than the job in question. For example, when setting the TCC for an Account Executive role within a particular business unit, look at comparable selling roles in other business units. In addition, consider both higher and lower level jobs to help with internal leveling (e.g., a National Account Manager as a higher level job and a Sales Representative as a lower level job.
• Recruiting insights – Understanding the current realities of the “street” can be helpful in establishing a competitive TCC level based on input from front-line sales managers and recruiters typically used by your company. However, beware of the tendency to inflate a recruiting candidate’s current TCC or actual total cash compensation earnings levels and use measures to validate these data where possible. Getting a candidate’s sales quota level in addition to the TCC amount is one way to do this. Another is to “discount” this type of input by up to 25%, as recruiters typically provide information on “top” or 90th percentile candidates.
• Exit interview results – Exit interviews for salespeople who voluntarily terminate employment can yield helpful insights on a number of sales management dimensions, including sales compensation. It is especially useful to get information about the TCC level they’ve signed on for in their new job, particularly in the context of their new quota or performance requirement for earning that TCC.
• External survey data – Survey data tends to be viewed as the “Holy Grail” of inputs for establishing TCC levels. Note, however, that it is mentioned as but one of a number of important inputs to establishing competitive TCC levels. Survey data are only as good as the extent to which the survey jobs match to the jobs you are attempting to market-price. Unfortunately, most pay surveys provide only minimal descriptions of its benchmark jobs, making the task of job-matching difficult. Another problem with an over-reliance on pay surveys is that they often report only actual as opposed to target pay levels. As such, without the corresponding performance data (which often is not reported), it is impossible to know whether the reported actual pay levels reflect strong performance, on-target performance, or poor performance.
• Company pay philosophy – Establish a company pay philosophy that includes, among other things, the definition of your organization’s competitive labor market. Beyond simply looking at an organization’s direct business competitors, this includes where the organization competes for talent. The competitive labor market should capture where there are comparable sales jobs on a number of dimensions, including the level of prominence or persuasion required, the type of sales process in terms of transactional versus consultative, the channel of distribution, the type or level of customers and prospects, the length of the sales cycle, and the complexity of the product or service being sold. One way to think about this is to identify the industries from which successful new-hires typically come as well as those industries to which departing sales staff commonly go. The pay philosophy also should define where to target TCC levels relative to the competitive labor market. If your organization doesn’t have an established pay philosophy, the default position is to use the 50th percentile or median data from relevant survey sources. If you deviate (and deviations are typically upward) from the 50th percentile, be ready to justify why your company needs to pay above-market TCC levels.

Survey Says...

There is no single source of data that should stand alone as the sole input to determining a sales job’s TCC level. Yes, some inputs will likely be more credible than others, but be open to a variety of contributing factors in the decision making process. The most common mistake I see in this process is to view pay surveys as the only viable source of information. Even if you have access to reliable survey sources, it is particularly important to leverage insights from field sales managers in terms current market conditions that may not yet be reflected in the survey data.