Best Practices in HR

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Mark Donnolo
  April 25, 2016

Culture and Compensation: Why the Two Are So Closely Linked

At a high tech company in Dallas, every December the sales offices are a ghost town. No hustle and bustle, no sales calls, no people. The last two weeks of the year routinely slide into one long holiday. But on the other side of town, at a competitor high tech company, the last two weeks of December are the busiest of the year. The sales offices look like Grand Central Station, with phones buzzing and late night meetings.

Clearly these two companies have very different sales cultures. And it’s not hard to guess which one pays its sales people on performance.

The culture of the sales organization is very closely tied to sales compensation. In fact, the compensation plan dictates whether you have a sales culture or a service and operations culture. Most sales organizations want a sales culture – one that drives growth through new customers and retaining and growing current customers. But some sales organizations are designed just to retain and service their current customers. These two sales teams will have very different compensation programs.

The following three factors determine the behavior of the sales organization and the resulting culture:

  1. Target pay. Consider the relevant labor market, and determine a competitive total target pay, that includes base salary and incentive compensation.
  1. Pay mix. Pay mix is the single biggest determinant of behavior and can make or break a sales culture. Pay mix defines the proportion of salary and incentive at target (when you reach your quota). Pay mix can vary by job type – in a more sales oriented culture, sales people will have more incentive pay as a percentage of target total compensation (perhaps 50 percent base salary and 50 percent target incentive) than a sales person in a service-oriented culture (perhaps 70 percent base salary and 30 percent target incentive). And beware: compensation plans with high base salaries often create a pay entitlement culture.
  1. Upside potential. Upside potential is the incentive pay available to top performers once they go above their quota. It’s often what really drives sales people. A true hunter, for instance, will ignore his base pay, glance at the total target pay (his pay when he reaches quota) and will base his lifestyle on the upside. In a sales culture, top performers are paid significantly more than moderate or poor performers.

In addition to the mechanics of the compensation plan, the messaging around the plan also has a huge impact on culture. The right message needs to be communicated at three levels:

  1. Leadership message. Culture comes from the top. If the CEO and/or sales leaders publicly and frequently recognize and reward top performers, you’re going to have a sales culture. If they fail to single out high performers or regularly recognize mediocre performers or praise good citizenship, you’re going to see less of a sales culture. This is true, even if leaders say they want a sales culture. Talking the talk is not the same as walking the walk.
  1. Sales team actions. In addition to listening to leadership messages, there’s definitely some monkey-see monkey-do in sales organizations. If sales people see their teammates hitting their quotas and offering customer solutions, they tend to try and repeat those same behaviors. On the other hand, if few people even try to hit their quota, others model that poor behavior and become more complacent.
  1. Measure and manage. If a sales culture is important, measure quota attainment. Similar to leadership messages, what you measure and recognize determines what people will work toward. Sales organizations that discuss results and sales performance, and hold up the people that drive results, will maintain a healthy sales culture.
Please credit photo to Bench Accounting/Unsplash.com