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Mary S. Fiss
Partner
Colletti-Fiss, LLC
www.collettifiss.com
(480) 483-1480
Sales Compensation Essentials for
the New Sale...
Sales Comp Essentials for the
New Sales Person
2
Session Topics
 What is “sales compensation”?
 How are different kinds ...
Sales Comp Essentials for the
New Sales Person
3
“Sales Compensation” – a Portion of Total
Compensation
 Total compensati...
Sales Comp Essentials for the
New Sales Person
4
How the Type of Sales Job Influences Compensation
Characterization “Selle...
Sales Comp Essentials for the
New Sales Person
5
Making An Informed Decision about a Job Offer:
What You Need To Know abou...
Sales Comp Essentials for the
New Sales Person
6
The Offer Letter: Typical Elements
 Position
 Manager
 Salary
 Incent...
Sales Comp Essentials for the
New Sales Person
7
Dear ______________:
I am pleased to confirm our offer of a position with...
Sales Comp Essentials for the
New Sales Person
8
Sample 2: The cash compensation element of the
letter
(Territory Manager ...
Sales Comp Essentials for the
New Sales Person
9
Sample 3: The cash compensation element of the
letter
(An Account Manager...
Sales Comp Essentials for the
New Sales Person
10
Sample 4: The cash compensation element of the
letter
(Another Account M...
Sales Comp Essentials for the
New Sales Person
11
How To Compare Cash Compensation Offers
Offer
Base
Salary
Target
Incenti...
Sales Comp Essentials for the
New Sales Person
12
Making An Informed Decision about a Job Offer:
What You Need To Know abo...
Sales Comp Essentials for the
New Sales Person
13
Where To Get Information
Develop a list of questions for:
 Recruiter
 ...
Sales Comp Essentials for the
New Sales Person
14
Common Key Terms and Definitions
 Salary/incentive mix: The ratio of ba...
Sales Comp Essentials for the
New Sales Person
15
“Mix”: Understanding the Trade-off Between Salary
and Variable Pay
Incen...
Sales Comp Essentials for the
New Sales Person
16
Target Incentive Opportunity:
What are the Alternatives?
 Percentage of...
Sales Comp Essentials for the
New Sales Person
17
Performance Measures:
How will Sales Success Be Judged?
 Generally limi...
Sales Comp Essentials for the
New Sales Person
18
Performance Standards (Range):
Performance is Not a Single Point!
Thresh...
Sales Comp Essentials for the
New Sales Person
19
What Else? Terms and Conditions
Details
 When you are eligible to parti...
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Sales compensation essentials for a new sales person (shared)

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College students interested in Sales must acquire a better understanding about how sales jobs are paid. This brief slide presentation is designed to provide a basic foundation for what college students need to know when considering a sales job offer.

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Sales compensation essentials for a new sales person (shared)

  1. 1. Mary S. Fiss Partner Colletti-Fiss, LLC www.collettifiss.com (480) 483-1480 Sales Compensation Essentials for the New Sales Person: Helping College Students Understand How Sales Jobs are Paid Prepared by: © Colletti-Fiss, LLC
  2. 2. Sales Comp Essentials for the New Sales Person 2 Session Topics  What is “sales compensation”?  How are different kinds of sales jobs paid?  What are the key features about which you need information?  What does the offer letter tell you? What does the compensation plan document tell you?  How can you get the information you need to compare the cash compensation offered by potential employers?
  3. 3. Sales Comp Essentials for the New Sales Person 3 “Sales Compensation” – a Portion of Total Compensation  Total compensation = cash compensation and benefits  Base salary and benefits are fixed elements of pay  The sales incentive is “at risk” and varies based on performance Base Salary Benefits Variable Pay (“Sales Incentive”) Benefits
  4. 4. Sales Comp Essentials for the New Sales Person 4 How the Type of Sales Job Influences Compensation Characterization “Seller” “Seller/Account Mgr.” Sales objectives One objective Multiple objectives Job responsibilities Limited to selling; limited product offering Diverse - sell; service; broad product portfolio Company support Limited Extensive Sales style Transaction oriented Solution oriented Relationship with the customer Limited, based on transaction(s) On-going Examples of industries/jobs Real Estate; Financial Services; Business Services Pharmaceuticals; Software; Professional Services Prevalent compensation model Relatively low salary (or draw) + commission; unlimited upside earnings opportunity Competitive salary + variable pay; bonus, commission or both; significant upside earnings opportunity
  5. 5. Sales Comp Essentials for the New Sales Person 5 Making An Informed Decision about a Job Offer: What You Need To Know about Cash Compensation  Your total cash compensation at target performance  Your base salary  Your incentive opportunity at target performance  When you are eligible to participate in the incentive plan  Draw or guarantee provision, if any
  6. 6. Sales Comp Essentials for the New Sales Person 6 The Offer Letter: Typical Elements  Position  Manager  Salary  Incentive opportunity  Benefits  Administrative requirements (e.g., screening, licenses, NDA)
  7. 7. Sales Comp Essentials for the New Sales Person 7 Dear ______________: I am pleased to confirm our offer of a position with the Company as a Sales Representative at a semi-monthly rate of $2666.67. You will also be eligible for a car allowance along with an estimated commission of $9,600.00. You will be paid from the payroll system on the 10th and 25th of each month. You will be pleased to know that we pay by Electronic Funds Transfer (EFT). Please have a voided check available when you report to work so that we may set you up on EFT. Sample 1: The cash compensation element of the letter (Sales Representative --- a New Business Seller) Not a lot of information here!
  8. 8. Sales Comp Essentials for the New Sales Person 8 Sample 2: The cash compensation element of the letter (Territory Manager --- a New Business Seller) Dear _____: This letter is sent as a conditional offer of employment for the Territory Manager (TM) position in the _____________________ market place. The offer is conditional on you successfully passing our pre-employment checks outlined at the end of this letter. The Company acknowledges that employees bring a unique set of talents and abilities to work with them every business day. It is the employee contributions that play a great role in achieving the Company’s Strategic Initiatives and our continuing success. In return the Company offers a competitive and comprehensive benefits program. The Company pays a substantial portion or the entire cost of some these programs that result in significant indirect pay. In this offer you will see a Total Compensation Offer breakdown to include the following: DIRECT PAY Base Annual Pay $ 50,000.00 Product Group A Commissions Paid on the 25th of each month $ 25,000.00 Product Group B Commissions* As earned $ 7,125.00 Total Direct Pay $ 82,125 00 Base Annual Pay is paid from the payroll system on the 10th and 25th day of each month. You will be pleased to know that we pay by Electronic Funds Transfer (EFT). Please have a checking account deposit ticket available when you report to work so that we may set you up on EFT. Commission checks are paid monthly. They are calculated and added to the 1st monthly check.
  9. 9. Sales Comp Essentials for the New Sales Person 9 Sample 3: The cash compensation element of the letter (An Account Manager Job) Dear ___________: We are pleased to offer you employment for the position of Account Manager. In this position, you will report to ___________ and will work from your home office. Your annual salary will be $50,000 and will be paid bi-weekly. Also, you will be eligible to participate in our bonus plan, the Company’s Sales Incentive Program (SIP). In 2015, you will be eligible for a SIP target bonus of $10,000. This is based upon you meeting goals and objectives that will be established by your manager and you, as well as the company’s performance. Your eligibility will be in accordance with the Company SIP guidelines. Not a lot of information here!
  10. 10. Sales Comp Essentials for the New Sales Person 10 Sample 4: The cash compensation element of the letter (Another Account Manager Job) Dear ____________: Company is pleased to confirm our verbal offer for the position of Account Manager, I reporting to _________, in the Sales Division. Your anticipated start date will be 12/3/2015. This offer and your employment relationship will be subject to the terms and conditions of this letter. In this exempt position, your salary will be $50,000.00 annualized less applicable withholding, paid in accordance with Company’s normal payroll practices. Future adjustments, if any, will be made by Company in its sole and absolute discretion. You will be eligible to participate in the 2015 Sales Incentive Program which has an annual targeted incentive of $32,500 prorated from your date of hire. The actual sales incentive earned (which may be more or less than the annual target) will be based on the terms outlined in your Sales Incentive Plan document and will be paid according to the rules of the plan as outlined in the Sales Incentive Compensation Plan document. As a newly hired Account Manager I, you will receive a flat sales incentive payout of $2,000 per month for the first three full months of service to provide time for training and to familiarize yourself with the territory.
  11. 11. Sales Comp Essentials for the New Sales Person 11 How To Compare Cash Compensation Offers Offer Base Salary Target Incentive Upside (Not commonly defined in the offer letter) Cash Compensation Target At Excellence 2 $50,000 $32,125 2.5x target (target + $48,187.50) $82,125 $130,312.50 4 $50,000 $32,500 1.5 x target (target + $16,250) $82,500 $98,750.00  When are you eligible to participate in the incentive plan?  Is there a guarantee or draw until you are eligible?  How many sales people actually make their target incentive? How long does it take to get up to speed?  What’s the upside for over-achievement, and how many actually earn it?
  12. 12. Sales Comp Essentials for the New Sales Person 12 Making An Informed Decision about a Job Offer: What You Need To Know about Incentive Compensation  Your total cash compensation at target performance  Your incentive opportunity at target  When you are eligible to participate in the incentive plan  The performance measures and performance range:  At what level of achievement you begin to earn incentive,  The “upside” at superior performance
  13. 13. Sales Comp Essentials for the New Sales Person 13 Where To Get Information Develop a list of questions for:  Recruiter  HR  Your future sales manager Ask for documentation:  The compensation plan document  Terms and Conditions  FAQs
  14. 14. Sales Comp Essentials for the New Sales Person 14 Common Key Terms and Definitions  Salary/incentive mix: The ratio of base salary to incentive opportunity as a percentage of the total target compensation; expressed as two portions of 100%.  Target incentive: what you can expect to earn at 100% achievement of the objectives you have been given  Bonus: Compensation paid as a percent of base pay, a fixed dollar amount, or a multiple of a defined dollar amount for accomplishing objectives; may be “capped” or “uncapped”.  Commission: Compensation paid as a percentage of sales measured in either dollars or units.  Leverage: The amount of upside opportunity beyond total target compensation that management expects outstanding performers to earn.  Threshold: The minimum level of performance that must be achieved before an incentive can be paid.
  15. 15. Sales Comp Essentials for the New Sales Person 15 “Mix”: Understanding the Trade-off Between Salary and Variable Pay Incentive Opportunity at Target: $20,000 Low Mix: 80/20 Salary: $60,000 Incentive Opportunity at Target $40,000 Salary: $80,000 Upside 3 x target (3 x $20,000) - $20,000 = $40,000 Typical Mix (b2b): 60/40 Upside 3 x target (3 x $40,000) - $40,000 = $80,000 Lower mix means less variable incentive. Lower variable incentive results in reduced overall opportunity if the upside is the same, although a higher portion of pay (base) is guaranteed. Lower mix means less variable incentive. Lower variable incentive results in reduced overall opportunity if the upside is the same, although a higher portion of pay (base) is guaranteed. $140,000 (uncapped) $180,000 (uncapped)
  16. 16. Sales Comp Essentials for the New Sales Person 16 Target Incentive Opportunity: What are the Alternatives?  Percentage of base salary (for example, 25% of salary)  Percentage of the midpoint of the salary grade (for example, 25% of the salary grade midpoint)  Defined dollar amount (for example, $15,000) Example (Salary Grade Midpoint is $60,000) Basis 25% of Base Salary 25% of Midpoint Defined $ Individual’s salary is $50,000 $12,500 $15,000 $15,000Individual’s salary is $55,000 $13,750 Individual’s salary is $60,000 $15,000
  17. 17. Sales Comp Essentials for the New Sales Person 17 Performance Measures: How will Sales Success Be Judged?  Generally limited to three; more than three could suggest lack of clarity or agreement about sales strategy  Weighted to indicate how much of the target incentive each measure will be worth; helps to communicate the priorities of the organization  Most valuable measure is generally financial
  18. 18. Sales Comp Essentials for the New Sales Person 18 Performance Standards (Range): Performance is Not a Single Point! Threshold • Minimal acceptable level of performance Target • Expected performance: often stretch Excellence • Top level (90th percentile) of performance Performance Excellence Target Pay Threshol d
  19. 19. Sales Comp Essentials for the New Sales Person 19 What Else? Terms and Conditions Details  When you are eligible to participate  How often incentive is paid  What happens if you take a leave  How the performance measures are defined  Company-specific employment policies

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