Developing the right model for PreSales compensation is one of the biggest challenges facing leaders today. The right pay model can increase motivation and retention - but the wrong one can damage your organization. That’s why I was excited for the PreSales Leadership Collective Executive Summit session on compensation myths. Our panelists were:
Ted Briggs, Principle at Better Sales Comp Consultants
Jeff Margolese, SVP of Global Solution Consulting at ServiceNow
Jo Ann Powers, Group VP of North American Solution Engineering at Oracle
Kerry Solkasky, President and Founder of PreSales Mastery
Why Compensation Matters
Kerry set the stage for the discussion with a serious dive into the compensation scene in PreSales right now.
Vivun’s 2021 State of PreSales survey showed that 40% of PreSales leaders don't believe that their team’s plans are effective at driving the right behaviors.
But compensation is tougher (and more vital) than ever because of the increased competition for PreSales employees. There are more than 50,000 PreSales roles open worldwide - with lots of competition, it’s a gold opportunity for SEs to find a better paying role somewhere else with ease.
To retain and gain talent, you need to pay people appropriately. High rates of employee turnover leads to big losses for employers, including the bottom line - it costs 3x salary an employee’s annual salary to replace them.
Employees aren’t always looking for a massive pay increase to leave either. According to HubSpot, 40% of those in sales roles will leave job for a 10% increase in pay. And employee satisfaction and turnover isn’t just linked to the salary amount and method, but also in paying your people accurately and on time.
Ted added that compensation has to fit within the overall realm of sales effectiveness. For example, if pay is the problem in retaining great PreSales pros, you have to find the root of the issue - why is your organization not able, or willing, to pay PreSales properly? You might need to look at other factors too. Roles are really important, structure, as well as the size of team and headcount, and how you deploy people.
Lots of organizations align their PreSales roles to specific teams or individuals, but they often don’t have enough headcount to make those assignments effective. If you don’t have a good headcount, you will never have an effective compensation plan.
Top Considerations for PreSales Incentives Design
- History of the plan - how have these people been paid before? Change is hard to manage and it has a big impact, even when you’re increasing it.
- Path of the people into PreSales - did you hire them into engineering? Acquire them? Integrate divisions? Going from pure engineering or sales to sales support people is critical to their perception of what risk and reward should be.
- Degree of variation in PreSales roles - is your model based on generalists or specialists? If you have people on the team who don’t cover the whole deal, but are part of the team making the deal happen, that can get tricky. They’re critical to the deal, so you need to determine where and how they’re impacting the deal and pay them accurately.
- Specificity of assignments and reporting - How well are you assigning people? Is reporting consistent?
- What kind of behavior do we want? Individual vs teamwork or both? Is there a full team sales number or just their part of the deal?
Common Compensation Myths
- Most PreSales pros are on team quotas. 25.4% of PreSales ICs hold individual quotas - they make more money and carry 10% higher salaries and 90% higher variable pay. Every team based leader whose team is on team-based plans should be worried. And team plans tend to reward weaker/lower effort players. That’s bad for retention which is already a challenge.
- I can’t equitably allocate opportunities. Deal with this by assigning SEs at a more macro level than AEs. Having PreSales cover larger areas is good - it’s less likely an SE is stuck with a single crappy AE affecting their earning potential. This should actually lead to more closed deals because it’s good for clients too.
- SEs will be less likely to collaborate. Encouraging teamwork and collaboration norms is more appropriately affected by your team and workplace culture. If you only help your team because you’re compensated to do that, it’s not a good sign for your workplace. Recognizing individual vs team doesn’t need to be either-or: you can have a hybrid plan, and that model might even be preferable.
- I need to compensate around non-revenue activities. Just be sure to put these activities in the job description. Use intrinsic motivators like award point programs to keep employees engaged and motivated. And recognition is really huge. It costs nothing but time to mention SEs alongside sales reps during deal reports. Also shoutouts on Linkedin - plus those are good for recruiting too.
- Everyone needs to be on the same plan. You can actually customize plans - they don’t need to be one-size-fits-all. However, if you do decide to use different plans for different employees, make them justifiably different so it’s defensible if you get challenged when someone finds out.
- The right plan would be too hard to calculate and manage. Data should not be a reason to not compensate well. ICM/SPM solutions are the way to deal with this myth. They give transparency to avoid disappointment, help model out new plans if needed, build the right plans, pay accurately, and forecast future earnings to increase motivation.
Common Sales Compensation Best Practices:
- Pay for individual results when individuals drive success.
- Encourage teamwork and collaboration where appropriate.
- Pay for results under the seller’s control.
- Include downside risk and upside opportunity to drive results.
- Pay mix should align to level of sales aggressiveness and impact.
- Using goal-based plans often drives results most optimally.
- Have no more than three metrics with at least 15% weighing on each.
- Measurement period should not be shorter than the sales cycle time.
- Payouts should occur as close to the sales event as is reasonable.
- Primarily use volume-based metrics and objectives (MBO) only secondarily.