Don’t Forget Sales Manager Pay

Don’t Forget Sales Manager Pay

Twice a year, I conduct a ½-day seminar at the University of Wisconsin School of Business on the whys and hows of sales force compensation. Over time, the audience has been in sales management, with varying levels of experience and decision making authority. We have done this for nearly two decades.

During our session, we focus our attention primarily upon members of the (field) sales force. We discuss what motivates different types of sales professionals to succeed (i.e.: sales-success profiles), and then review what compensation (and other motivation) tools represent current best practices and work best in various situations. It is a quick-paced three-hour journey.

At the very end of our discussion and slides, we always pause to remind the session participants: Now, don’t forget the sales manager! Why do we say that? Because the expectations, tools and methods for rewarding sales managers are quite different than those we have discussed throughout the previous few hours in addressing the needs of the field-sales professional. Then, I spend about 10 minutes delineating those differences to the participants. It always feels like we are not spending enough time, and we are likely not.

We have more time and space to discuss the sales manager today. So let me outline below what we have found to be the three keys of success for effective sales manager compensation.

  1. A sales manager is not just a better-paid field sales professional. A sales manager is just what the title says: a manager. We believe the job of the successful sales manager must be focused upon two prime activities—
    1.  Building bridges, or linkages, between the organization’s strategic plan and the account-based actions and initiatives of their sales team undertaken within their assigned district or region—i.e.: their regional sales plan. Managers direct and advise their sales professionals regarding what to do, and more importantly, what is expected. Some call this merely goal setting. It goes well beyond that.
    2. Developing and improving the skill base and overall quality of their field sales team. The sales manager must determine who can do the job, and alternatively, who cannot. Then their job is to first maximize the impact of their high-skilled and best sales professionals, and then improve or replace other (less-skilled or capable) members of the sales team.
  2. The sales manager is paid quite differently than a sales professional. An effective sales manager pay plan will pay the manager primarily based upon the results of their entire sales team. If their sales team is to deliver $40 million in sales next year the manager will generally earn a competitive or target (agreed-upon) amount of pay—and the mechanics of the bonus plan will assure that. While there may be other components of pay, if the sales manager is not held accountable for the performance and actions of their team, the plan is way off target and that sales region will likely fail to meet the organization’s sales or profit objectives.

    You also see a different mix and amount of pay for a field sales manager plan. The sales manager will generally earn at least 30% more in total annual compensation (salary plus bonus) than that of an experienced sales professional, if they both achieve targeted levels of performance. Typically manager salaries will also be higher than that same experienced sales professional. Of course, higher or lower levels of performance and experience will change that total compensation spread.

  3. Sales manager bonus pay is riskier. Since the sales manager is solely (or jointly) responsible for his or her district or regional performance, a well-designed bonus-pay plan will reflect that performance. Consequently, if the sales manager meets their plan and underlying company strategic goals (for sales or profit), they will fully earn their agreed-upon annual bonus. If they do better, they will then make more. But if their sales team underperforms, they will earn much less. And at unacceptable levels of performance, they can earn nothing or very little in annual bonus. Clearly, we are not talking about a classic commission or a commission-override pay plan here.

Now some would say: “all the above is good, but we are a small firm and our sales managers must maintain their own book of business to earn their keep.”  It is common for sales management (all the way up to the company President in my experience) to have a few accounts that they manage. There are some good reasons to do this (e.g.: client’s choice, field engagement…), but there is a limit. If your sales manager is spending more than 10% of their time managing and servicing their “own” accounts, they are likely not operating as a manager and your district or regional results will surely suffer. Further, you have now provided an excuse for failure that goes well beyond compensation issues.

Are your sales managers acting like managers, and being paid accordingly? If the answer is no or you are unsure, go back and apply the rules and principles we stated above to your sales management team.

2015 will be here in a matter of weeks. As you think about making changes to your sales incentive programs for the coming year—don’t forget the sales manager.

Wilkening & Company has assisted clients with improving their sales effectiveness and sales force compensation systems for over three decades. Are your 2015 sales professional and sales manager pay plans everything they should be? If you are unsure, call me at (847) 823-5090.

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