The compensation structure is the foundation on which a commission plan gets built. If it doesn’t get set up correctly, your plan is not going to make a difference. To set up an ideal compensation plan, you need to have the right incentive pay %, which will work for both the firm and the individual.
Before that, here is a short definition of how incentive pay% is derived from a CTC.
Incentive Pay % = (On target earnings - Base pay)/(On Target Earnings)
How do we choose the right pay% by roles?
To understand how we select the ideal pay % by roles, let’s start with the essential part of your GTM org, sales reps, and then work backward.
Sales teams are a revenue center 💸 and are directly measured for their effectiveness in terms of $. Incentive plans are hence designed to maximize sales efficiency and reduce risks.
Usually, your incentive % is decided based on the support you get and the target’s difficulty. The more you get in terms of inbound leads, SDRs, and brand coverage in the market, the lesser your incentive payment will be.
Why so? The more likely you are to meet your targets, the more likely you are to overachieve. So, your incentive pay % is limited to keep costs within reasonable limits.
On the other side, the higher the risk, the higher your incentive pay. Enterprise sales reps usually end up with a payment plan that is heavy on incentives. The flip side is that if they can overachieve on targets, they get to make so much more in incentives. The more direct revenue influencing a role is, the higher the incentive pay compared to the fixed pay.
We have compiled the % splits and the roles that they are usually applied to in the below infographic. This should give you the right idea to choose the incentive pay% for your next hire.
Acknowledgements : Thanks to Samra Taban for editing the blog. Thanks to Aravindh Natesan for the designs.