Ditch Commission and Pay Your Sales Reps Full Salaries
Kevin Dorsey has a radical vision for sales compensation: a full salary.
After all, engineers make salaries. Data scientists do, too, as do marketers and product managers. In fact, employees across every other role in a tech company earn salaries, and somehow they manage to get their work done. So why can’t sales reps?
Dorsey, who is the VP of inside sales at PatientPop, believes commission structures may be a root cause of some of the issues that sales teams most often struggle with: low quota attainment, churn and recruitment. “Commission is an archaic way to pay people,” he said.
But paying a full salary can provide other benefits, too, like an opportunity to hold reps to a higher standard across all their responsibilities. It just requires thinking about sales performance metrics and compensation in a different way.
Fixed Salaries Attract More Candidates
Commission can encourage reps to focus on bringing in new logos or to sign customers to longer-term deals. It is also typically tied to the quota, which then becomes the blueprint for what a rep needs to do to make their full income.
In a previous story on compensation plans, ActiveCampaign VP of Revenue Operations Weisen Li told us that commission works because it brings out the natural competitiveness in salespeople.
Dorsey believes a salary-based plan can accomplish the same goals, but more effectively. After all, fewer than half of sales reps hit their quota in a commission-based plan. In a salary model, the targets in the plan define the rep’s job. It becomes what they’re paid to do, along with their other sales tasks like prospecting, running demos and updating the CRM.
Reps are still responsible for meeting quota, but it puts less financial pressure on closing each individual deal. In that way, it motivates reps to keep putting the work in on deals that take longer to close. If they’re doing the right things to engage the buyer, they’re still earning a full paycheck without having to rush them to close, Dorsey said.
“We’ve missed out on so many people who would love to get into sales but can’t because it’s a $50K base pay and $50K OTE commission.”
There’s also a common belief that the commission-based structure of sales brings in money-driven candidates, but Dorsey sees it doing the opposite. While the potential for earnings may be higher under a commission structure, most money-driven people tend to steer toward industries with a higher guaranteed salary like the financial sector.
Offering a higher salary can serve as a way to attract money-seeking candidates, but it also makes the job more accessible to reps who want security from their jobs, Dorsey said.
“We’ve missed out on so many people who would love to get into sales but can’t because it’s a $50K base pay and $50K OTE commission,” Dorsey said. “I could get that person if I paid them $80K flat. That’s why I think it’s such a broken system. It’s not driving the results we want and we miss out on good people.”
Salaries Can Help Hold Reps to a Higher Standard
The most common concern under a fixed salary plan is that reps wouldn’t be motivated to reach their quotas, or that they’ll coast once they hit their targets.
But that fails to take into account the responsibility other employees have in their salaried positions. A software engineer is motivated to write code and deliver a project on time because, if they don’t, they’re let go. In the same way, quota becomes a key performance metric for a sales rep.
Dorsey would set a minimum attainment goal at 80 percent to quota. If a rep fails to meet that target after three sales cycles, they’d be fired.
This also allows sales leaders to maintain a higher quality of sales reps on their team. While a commission is supposed to drive out low performers, often those reps stick around because they don’t cost the company as much money, Dorsey said.
Meanwhile, offering a bonus for reaching a specified target over the initial quota can incentivize high-performing reps to go above and beyond their current duties.
Salaries Won’t Work for Every Sales Rep
If Dorsey ran his own company, he’d plan to offer three different compensation plans for sales reps.
The first would involve no base pay and high commission rates for the risk-takers; the second would pay reps upfront each month, but they’d have to give back a portion of it if they don’t hit quota to motivate the loss-averse; and the third would be the salary and bonus pay structure for the security-driven.
Ultimately, there is no one-size-fits-all approach to motivating salespeople, and the compensation plans should reflect that, Dorsey said. A salary-based plan may appeal to some sales reps who are driven by security, but for the ones motivated most by money, it would be less attractive.
“People are holding on to [commission] because it’s all they know.”
Dorsey has experimented with a fixed salary approach with a small group of AEs within PatientPop and found success. He’s also seen more companies trying out the same model. While sales comp plans remain rooted in commission, it’s only a matter of time before more managers consider salaries.
“There are a decent amount of companies out there that are starting to do this and I’m watching them,” Dorsey said, adding that he thinks the main hold-up is the fact that most sales leaders have gotten comfortable with the status quo. “People are holding on to [commission] because it’s all they know.”