2. 36 | workspan June 2014
Pay Mix Primer
Before examining global versus local
practices, here is a quick primer on
sales compensation pay mix and
why sales compensation plans gener-
ally use a pay mix methodology
rather than a percent of base salary
approach most often used in manage-
ment and gainsharing incentive plans.
Pay mix is the ratio of base salary
to the target total compensation
(TTC) and target incentive to the
TTC. In other words, 60/40 means
60 percent of TTC is base salary
and 40 percent of TTC is the target
incentive. For example, if a job has
a TTC of $100,000 with a 60/40 pay
mix, then the base salary would
be $60,000 (60 percent x $100,000)
and the target incentive would be
$40,000 (40 percent x $100,000).
(See Figure 1.)
Sales compensation pays for persua-
sion — persuading the customer to
buy something from the company.
The market generally uses a pay
mix methodology (as opposed to
a percent of base salary approach
found in management programs)
to reinforce the at-risk status of
the target incentive until goal
achievement. In other words, sales
representatives are unable to achieve
their TTC until they hit their goal
(usually in the form of a sales quota).
For example, this is a typical
communication to sales representa-
tives: “Congratulations on your new
sales job. We are committed to
paying you our market competitive
target total compensation package
of $100,000. Your base salary is
$60,000 and will be paid biweekly.
Your incentive compensation will
vary based on your performance
against your sales quota and be paid
monthly. If you achieve your target
sales quota, you will earn your full
$40,000 target incentive. If you miss
your target sales quota, you will
earn less than your target incentive,
consistent with your performance.
If you exceed your target sales
quota, you are eligible to receive
accelerated payouts to reward you
for your over-quota achievement.”
Management and gainsharing incen-
tive programs provide a base salary
with a bonus opportunity expressed
as a percent of base salary. For
example, a management incentive
program may pay a leader a $100,000
base salary with a 25 percent base
salary bonus opportunity. The
bonus opportunity is equivalent to
$25,000 ($100,000 x 25 percent). Sales
compensation programs generally do
not use this methodology because it
does not explicitly communicate the
at-risk nature of the incentive.
Pay Mix Management Practices
Companies will vary pay mixes for
each job based on the job’s level of
persuasion. For example, a direct
sales representative job responsible
for prospecting, qualifying and
closing deals may have a 60/40 pay
mix, while an overlay technical
specialist providing technical exper-
tise during the sales process may
have an 80/20 pay mix.
Similarly, most companies vary pay
mix for the same job across countries.
Results of the “2012 Sales Compensa-
tion Trends Survey” conducted by
the author’s company showed that
64 percent of the global sales orga-
nization participants vary pay mix by
country and 36 percent use globally
consistent pay mixes.
Global pay mix principles and ratio-
nale vary from company to company.
Companies that allow pay mix to
vary by country generally have the
following pay mix principle: “Pay mix
is based on the role’s degree of persua-
sion/influence in the sales process and
aligned to local market benchmarks
to recruit and retain top talent.” These
companies typically cite one or all
of the following reasons to support
their practice. First, they may wish to
accommodate local market practices
regarding at-risk pay tolerance to
Figure 1 | 60/40 Pay Mix Illustration
Incentive
as % of TTC
40%
➔
$100,000
Target Total
Compensation ➔
$40,000 Target
Incentive
Base Salary
as % of TTC
60%
$60,000 Base
Salary
Source: The Alexander Group
Pay mix is based on the role’s degree
of persuasion/influence in the sales
process and aligned to local market
benchmarks to recruit and retain
top talent.
3. | 37June 2014 workspan
ensure they can recruit and retain
the right talent for that marketplace.
Second, the job content and degree of
persuasion may vary based on selling
requirements in the local market.
And third, the company might allow
pay mix variance to match the local
performance management narrative.
Companies that use globally consis-
tent pay mixes generally use the
following pay mix principle: “Pay
mix is based on uniform job design
and is globally consistent.” These
companies typically cite one or
both of the following reasons to
support their practice. First, they
prefer to drive one global job and
associated compensation design.
And, second, a consistent worldwide
approach to pay mix is easier to
communicate and administer.
Most companies that vary pay mix
by country use two practices:
❙ Local discretion. Provide a pay
mix range and let the local country
managers determine the right pay
mix for their country. Challenge:
Management discretion might
allow a local manager’s personal
bias to be the basis of pay mix
decisions and, thus, may change
when leadership changes.
❙ Prescribed local pay mixes. A
corporate function selects pay
mixes for each role in each
country. Challenge: This effort
requires extensive corporate
oversight, which is complex to
manage, track and communicate.
Globally consistent pay mix prac-
tices have their issues, too. Local
management may have a difficult
time recruiting and retaining local
talent if base salaries are too low or,
conversely, when the target incentive
is too low — it becomes too difficult
to earn upside rewards.
One way to solve these issues
is by creating a pre-defined
pay mix structure.
Develop a Pre-Defined
Pay Mix Structure
A pre-defined pay mix structure
provides corporate direction while
allowing local adjustments.
Here are the steps to create a pre-
defined pay mix structure.
STEP 1 Gather Market Data.
There are many sources of interna-
tional market pay mix data. Similar
to a pay level benchmarking exercise,
companies should select a data source
that includes a data cut for their
industry and/or companies where
they compete for labor and product.
Many companies purchase a custom
cut of the market data, which includes
a specific set of target companies to
improve their data’s relevance. Large
companies source multiple data
sources to improve the accuracy of
their data. After selecting the data
source, companies select the market
job matches and countries pertinent
to them. Then, they pull the pay
mix data for those jobs/countries by
examining actual incentive payouts
compared with base salaries.
STEP 2 Group jobs by
degree of persuasion.
Group jobs by level of persuasion
and influence on the purchasing
decision. Companies use the market
data to guide their grouping; however,
they should recognize the unique
attributes of their own go-to-market
model and sales responsibilities.
Following are example job groups:
❙ Job group 1: This group
includes jobs with the highest
level of persuasion, such as the
named account manager.
❙ Job group 2: This group includes
jobs with medium levels of
individual persuasion, such as
the overlay product specialist
(who works across a region
of named account managers) and
global account manager (who has to
rely on a team of sales and nonsales
resources to complete a sale).
❙ Job group 3: This group includes
jobs with lower levels of persua-
sion, such as the channel manager
(who relies on partners to close
deals) and business development
role (strategic role focused on evan-
gelizing the solution that leads to
specific larger opportunities, but not
responsible for closing the deal).
STEP 3 Group countries
by level of risk tolerance.
Gather the pay mix data by country
for the primary, most populated sales
role. Next, sort the data by market
pay mix and assign each country
to a group. Figure 2 includes the
survey results for U.S. named account
manager roles with 40/60-50/50 in
the “2012 Sales Compensation Trends
Survey.” Note: Although the data
suggest six pay mixes to be used
by nine countries, the goal is to
consolidate the data into a simplified
Figure 2 | Country Risk Tolerance Groups
Country Average Pay Mix
(Companies with 40/60 — 50/50 Pay Mix in the U.S.)
Country Grouping By Risk Tolerance
United States 44/56 A
Mexico 51/49
B
Brazil 53/47
France 53/47
Germany 53/47
United Kingdom 53/47
Russia 50/50
Japan 60/40
China 63/37
Source: The Alexander Group
Country Average Pay Mix
(Companies with 40/60 — 50/50 Pay Mix in the U.S.)
Mexico 51/49
France 53/47
Germany 53/47
United Kingdom 53/47
(Companies with 40/60 — 50/50 Pay Mix in the U.S.)
C
(Companies with 40/60 — 50/50 Pay Mix in the U.S.)
Country Grouping
A
Brazil 53/47
(Companies with 40/60 — 50/50 Pay Mix in the U.S.)
To read a book about
this topic, log on to
www.worldatwork.org/
workspan.
4. 38 | workspan June 2014
structure that is directionally appro-
priate for each included country.
STEP 4 Set pay mix for each job and
country group based on individual
influence and market practices.
Create a matrix that includes each job
persuasion group and each country
risk tolerance group. Then, leveraging
the market data, fill in the boxes.
Because Figure 3 uses the market
data for the named account manager
in Job Group 1 to define the country
risk tolerance groupings, the rounded
pay mixes for each of those country
groups are populated into the first
row. Leveraging market data for the
roles included in job persuasion
groups 2 and 3, the pay mixes for
these two rows are populated (data in
chart is an example).
Simplicity vs. Complexity
Some practitioners err on the side
of being too simple and, therefore,
may design a limited pay mix
structure. Other practitioners err
on the side of being too exact and,
therefore, may design a complicated
pay mix structure. The key is to
ensure the structure accommodates
local market needs but is simple
and easy to communicate, explain,
administer and govern.
Pay Mix Transition Strategies
After the pre-defined pay mix
structure is set, companies should
complete a gap analysis by comparing
their current participants’ pay mixes
with the new pre-defined pay mixes.
Next, determine what the appro-
priate transition strategy is to align
their current participants to the new
structure. When considering the
best transition strategy, companies
should consider the competitiveness
of the participants’ pay levels as
well as their ability to articulate a
compelling business case for change.
Lastly, do not forget to comply
with country regulations that limit
base pay changes.
The following lists provide the
most common transition strategies
depending on the type of change:
Migrate to more pay-at-risk
(e.g., 80/20 to 60/40)
❙ Cold cut. Move base salary
to target incentive.
❙ Cold cut with pay change. Move
base salary to target incentive;
however, increase overall TTC to
soften the transition (generally used
when TTC levels are below market).
❙ Recoverable draw. Provide a
nonguaranteed draw equivalent to
the difference between the new and
the old base salary for a specified
period (e.g., $5,000 recoverable
draw per month for six months).
❙ One-time payout. Provide a
one-time payout equivalent
to the difference between the
new and old base salary.
❙ Migrate over time. Migrate indi-
viduals to new pay mix over
time (e.g., convert 5 percent
of base salary to target incen-
tive each year for four years).
❙ Migrate with merit increase.
Add all future merit increase to
the base salary until individual
reaches the new pay mix.
Figure 3 | Pre-Defined Pay Mix Structure
Job Persuasion Groups
Country Risk Tolerance Groups
A
United States
B
Mexico, Brazil, France,
Germany, United
Kingdom, Russia
C
China, Japan
Group 1:
Named account manager 45/55 50/50 60/40
Group 2:
Overlay sales specialist
Global account manager
60/40 65/35 70/30
Group 3:
Channel manager
Business development roles
70/30 75/25 80/20
Source: The Alexander Group
The key is to ensure the structure accommodates
local market needs but is simple and easy to
communicate, explain, administer and govern.
5. ❙ Grandfather. Grandfather the
individual at the old pay mix.
Migrate to less pay-at-risk
(e.g., 60/40 to 80/20)
❙ Cold cut. Move target incen-
tive to base salary.
❙ Cold cut with pay change.
Move target incentive to base
salary; however, increase
overall TTC to soften the transi-
tion (generally used when TTC
levels are below market).
❙ Recoverable draw. Provide a
nonguaranteed draw equivalent
to the difference between the
new and old target incentive for
a specified period (e.g., $5,000
per month for six months).
❙ One-time payout. Provide a
one-time payout equivalent to
the difference between the new
and old target incentive.
❙ Migrate over time. Migrate individuals
to new pay mix over time (e.g.,
convert 5 percent of target incentive to
base salary each year for four years).
❙ Migrate with merit increase. Add
all future merit increase to the
target incentive until individual
reaches the new pay mix.
❙ Grandfather. Grandfather the
individual at the old pay mix.
What’s Right?
When it comes to sales compensa-
tion design, even for an aspect as
straightforward as pay mix, there is
no shortage of opinions. Letting each
leader decide what’s appropriate for
their teams will inevitably lead to a
wide range in pay mixes and a host
of potential downstream problems.
Applying a one-size-fits-all global
structure may cause recruitment and
retention issues. There are several
benefits to confirming with leadership
the company’s pay mix philosophy
and developing a pre-defined pay mix
structure, including:
❙ Pay mixes that align to the
role’s degree of persuasion
❙ Market competitive pay mixes that
allow you to attract and retain the
right level of talent in local markets
resources plus
For more information, books and
education related to this topic, log
on to www.worldatwork.org and
use any or all of these keywords:
❙ Sales compensation
❙ Global sales compensation
❙ Sales compensation + pay mix.
| 39June 2014 workspan
❙ Principle-driven solution as
opposed to leadership whims
❙ Programs that are easy to commu-
nicate, administer and govern.
Rachel Parrinello, CSCP, is a principal at The
Alexander Group Inc. in San Francisco. She can
be reached at rparrinello@alexandergroup.com.
