For better or for worse, since the beginning of time, humans have developed a habit of promoting top performers. Throughout history, you see the best soldiers promoted to captains, the best athletes promoted to coaches, the best students promoted to teachers, and the list goes on and on. Time and time again we have seen a few scenarios play out in these situations and in my mind, there are really three different paths history has shown us:
- Triumph – These leaders accept the challenge and are a positive addition to their communities, organizations, countries, etc.
- Mediocrity – These leaders aren’t necessarily failures, but they also aren’t a success. These are the ones you never hear about, good enough, but not great.
- Failure – I probably don’t need to do much explaining on this one.
The variable component of success between great historic leaders and sales managers is exactly the same, and that variable is motivation.
Switching the Context of Success
Before I dive any deeper into motivation itself I want to make sure I highlight something that is often overlooked and that is switching the context of success.
In relation to sales, let’s quickly walk through the transformation we assume most reps will undergo as they are promoted and attempt to become successful managers.
For years, this AE thought about one thing, “I have to hit my quota.” Everything this AE did for the last few years was all in pursuit of that one goal. All of her training was about becoming a better seller so she could hit quota easier, late nights were spent updating the CRM because she wanted her forecast to be accurate, and then, when she exceeded quota, she joined the President’s Club. The list goes on and on. This individual more or less had complete control over her success, and therefore, she also had complete control over her compensation.
Once a rep is promoted, the expectations change. She will be training her team so they can be successful. She will be up late listening to others calls and looking through their opportunities in the CRM. She may or may not go to the President’s Club because, at the end of the day, it’s up to her team to reach their goals. This is a huge change and it’s important that we recognize it as we talk about motivating and compensating sales managers.
If we don’t understand the situation we are asking them to be in, how can we appropriately set up a compensation plan for them to reach their goals? The likelihood of failure is so much higher if, at the executive level, we don’t aid in the process of context switching and ramp them as they figure this out.
Understanding the New Motivation
Even if your organization has been around for 100 years,you will still run into a motivation problem when you take a top performer off the sales floor and stick them in a side office next to their new team as a sales manager. Here are a few tips to keep in mind as you help facilitate the transition from AE to sales management.
- Take it slow. Give your new managers enough time to transition. They have been completely focused on their own goals and success up until this point, and that won’t change overnight.
- Maintain open lines of communication. Although the pressure of holding an individual quota is generally gone, this individual may still go through an emotional rollercoaster. It can be mentally taxing to adjust to a world where you don’t necessarily get the high of reeling in a deal. Be patient and allow new sales managers to be vulnerable.
- Lay down a plan for success. Help new sales managers ramp and let them know what success looks like. Coach them on how to be successful and offer consistent feedback along the way. Be their advocate.
Next, let’s really understand how to tie motivation and compensation together as it pertains to sales managers.
How to Structure Compensation Plans for Sales Managers: Base vs. Variable
One of the trickiest parts of building any compensation strategy is finding the balance between base pay and commissions. Generally speaking, when you are talking about sales reps it’s pretty safe to stay within the range of 40/60 (base/variable) to 60/40, with my personal suggestion being 50/50. Like we discussed earlier, reps commissions should motivate them to selfishly hit goals and targets. A model like this tends to create hungry and strong reps.
That said, manager compensation strategies should be a little different. Once someone is promoted to a manager role you generally want to see an uptick in their guaranteed base and a small decrease in their dependence on commissions. That doesn’t mean that the amount of commissions they earn should necessarily be less, but that the ratio generally should favor the base. These individuals have proven themselves as top performers and you should pay them as such.
When your managers are too incentivized by commissions you start to drive potentially selfish motivations that aren’t conducive toward facilitating a healthy team environment. You start to build a culture that is so focussed on numbers and attainment alone that job satisfaction and the health of your employees can decline. If you want to build a healthy and sustainable sales culture, allow your managers to focus on their respective team, their team’s success, and their team’s job satisfaction, all at the same time.
Individual Team Attainment vs. Company Attainment
In line with the philosophy of base vs. variable incentive is the balance of team vs. company attainment that is included in their commission plans. Simply put, team attainment vs. company attainment refers to how much compensation is tied to individual team performance vs. how well the company performs overall. Although team attainment vs. company attainment is situational, here’s where I recommend starting.
I suggest making 65-75% of your sales managers’ variable OTE (commissions) tied to their team’s performance. This should also include potential accelerators if their team exceeds expectations. Team performance should be your managers’ main focus. I prefer to make this a tiered structure that accelerates commission rate after 100% of the team goal has been met. This will help motivate your sales managers to take an active role in their team’s success.
From there I recommend tying 10-20% of the sales manager’s goal to company attainment in the form of a hit or miss bonus. This will help encourage your sales managers to buy into company vision and to collaborate with other members of the leadership team. Giving them a chunk of cash that is tied directly to company goals also gives the manager a healthy sense of ownership when it comes to the success of the overall organization.
The final 5-25% of the managers variable OTE should be tied to their individual contribution. This tends to be a pretty hot topic, but I am a big believer that most managers should hold some sort of quota or minimum expectation that they are held accountable for. This is a very healthy way to help your managers build empathy for their teams and grow into a great leader, as well as a great way to mitigate complacency.
These quotas and expectations don’t need to be heavy or time consuming. Oftentimes this number will be a certain amount of deals a manager should run a quarter (win or lose) or, for BDR managers, a certain amount of phone calls made a month. Give it a shot, I promise if you position it correctly you’ll see a healthy growth in your management team.
Closing It Up
In closing, my final thought is this: Take care of your sales managers and they will take care of you. I don’t know if I’ve seen a role in sales where promotion can so quickly turn into disaster faster than in a sales manager role (closely followed by an AE being promoted from an outbound sales function), and a lot of the time it isn’t the sales manager’s fault.
With these changes we need to make sure we are enabling our managers to make the mental and physical adjustments needed to be successful in their new role and it takes time. That said, I would also like to end with one word of caution: Just because you shouldn’t expect a new manager to immediately change the performance of a team, you should immediately see them attempting to make improvements in their ability to lead and perform.
No amount of commissions or compensation strategy can fix the damage done by a poor sales manager left in a role too long. We need to give managers what they need, create a strong environment that they can lean on to ramp, and work towards driving those results while preventing the points made here from turning into a crutch.
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