I have always been fascinated by compensation plans. They differ from company to company, region to region, country to country, and team to team. There were some Sales Engineers I talked to who weren't able to explain how they calculated their entire comp plan as it was quite complex.
TL;DR: Compensation plans need to be simple, easy to understand, very well communicated, documented in a place where your team can always see them, evolved based on company and industry changes and aligned with the company needs and its vision.
There is no one formula or structure for compensation plans, but there are a few common use cases across industries.
In this article, you will learn:
- An explanation of compensation plans
- How they differ between organizations, locations, and experiences
- Whether comp plans should be tied to KPIs
- Resources you can leverage to know how much to ask
- Negotiating your compensation plan
- Question to ask before joining a company
1. What is a compensation plan?
A compensation plan is a payment package designed to attract and retain employees. A basic compensation package consists solely of a salary or wages. A more comprehensive compensation could include additional benefits such as bonuses, perks, commissions, health insurance, or retirement investments.
2. Different compensation plans
Every company will have its own structure and compensation plan. Some comp plans will be easy to understand with only two or three goals to achieve in order to get to 100% (and above), while others will be extremely complicated to understand or difficult to achieve.
Comp plans usually have a base/variable of 70/30 or 75/25 or 80/20, and SEs rarely have 60/40. If the comp plan is good, then the employee can accomplish more what is known as overachieving, and then it will look like 70/50 or even 80/50 (yes, I realize that the math doesn't make much sense).
3. Tie sales engineering KPIs to company or team quotas
According to many sales engineers in the industry, a healthy comp plan should tie the majority of sales engineer KPIs to company or team achievements. Think about it. Suppose there is a great SE, but others in his or her region and/or market are measured by different parameters, then he will have difficulty meeting his goals and his entire on-target earnings (OTE).
4. Resources for knowing your worth
Are you concerned that you don't get paid enough? You can find some great online resources to check that. Be aware that they won't be 100% accurate for everyone, but they can give you some good estimates.
A few examples:
- Consensus 2021 Sales Engineering Compensation & Workload Report
- CompGauge Sales Engineer Salaries
- Why Do Current Compensation Plans for Sales Engineers Miss the Mark?
5. Is the whole OTE negotiable?
Yes and no.
As an example, 70/30 is calculated based on the total. If you make $100k as your base salary, they expect that you will earn $145k with commissions, bonuses, milestones, etc. Even if you didn't sell anything all year, you'd get $100k (or you could be let go before then).
When you trust the company, product and team, you should consider negotiating for a lower base and a higher variable (e.g., instead of 80/20, you can negotiate for 70/30 or 75/25). It's a win-win situation. If you achieve more sales, you'll drive revenue and everyone will be happy.
- For more skin in the game, ask for a larger variable target rather than a larger quota. Quotas with a higher target should come with bigger accelerations for overachievement or a larger territory or more resources to help you surpass the target.
- You might say that you are confident in your ability to perform and would like a higher variable comp with a bigger quota to meet.
Don’t forget that negotiation doesn't always work, as in many companies these numbers are consistent across the team. This may be a lot of accounting work for them to grant you this request.
Plus, if you run a few scenarios, you'll probably find the difference between 70/30 and 75/25 is not huge (assuming you are compensated based on a standard metric like team or regional performance which is going to range from 80-120% pretty consistently, as opposed to a more volatile metric).
6. What questions should I ask before joining a company?
- Ask them to show you the math with some examples. On a whiteboard if possible.
- Ask them how your plan will work if you start mid-quarter. Does your plan take effect immediately? Will there be a draw? What about management by objectives (MBO)?
- Ask about equity. If the company is public, are there restricted stock units? If it’s private, are there any other long term cash incentive programs like bonuses or the ability to earn equity? Equity is what will build your net worth in large chunks.
- Ask about past and forecasted performance. How did the people that make up what you’re aligned to perform over this and previous fiscal years?
- Ask about previous quarters in your region and the teams you’re tied to.
Your compensation plans are important and you should take time to learn how to achieve them. Be sure to pay attention to them and negotiate if possible.
Do you have any tips for compensation plans? Have you set up an effective compensation plan?
About Menachem Perlman
Technical Sales Engineer & Business Strategy Leader with more than 16 years of experience building scaling business and product growth strategies for startups, small businesses, and global brands of all sizes.
I utilize a multidimensional skillset combining extensive technical, sales, and managerial capabilities to develop and lead large cross-functional teams to create cutting-edge products and services in fast-paced and dynamic environments especially in the Cyber-Security, IT, Network, and Security industries.
During my career, I have been fortunate to design, develop, and scale business departments from the ground-up and to lead rapid global GTM expansions and technical growth as a solution architect and pre-sales engineer for several startups and global corporations. I provide hands-on general management, product & software development, product strategy, technical sales, customer success, and software development leadership.