Why Most Sales Compensation Plans Fail | Tips for Sales Managers

Here is the cleaned transcript with the content preserved and the grammar tightened for clarity and flow:

Plug: Paul Leon here. Thank you so much for being a consumer of the show.

Paul Leon: Welcome back to The Managers Mic. I have with us a returning guest, Scott Trompolt. Scott, even though you are a returning guest, in case someone is new to this show and has not had an opportunity, like I have, to meet you, who is Scott Trompolt to them?

Scott: Hmm. Well, first of all, Paul, I have to thank you for having me back on. I really appreciate the opportunity to talk to you and your audience about topics we have talked about in the past and what we are going to talk about today. But to your question, I am an independent compensation planning and design consultant. What that really boils down to is that I help companies—

Plug: If you are a business owner who wants a free sales audit of your current sales process to evaluate possible gaps, and you feel like we can help you, please reach out to us directly at themanagersmic.com, and we will set up a free—

Scott: —figure out the best way to make a financial investment. I am not a financial advisor, but in essence, I help companies determine how to pay employees appropriately—

Plug: —30-minute consultation, no commitment at all. Just to take the relationship further, we can speak in real time. Thank you so much for being a listener and watcher of the show. And now, back to the episode.

Scott: —for the contributions they make in the organization. There are a lot of different ways to do that. People think about base pay, and that is certainly very important, but there are also variable pay aspects that are incredibly important. For example, sales compensation is an area that I do not think gets as much attention out there as, say, base pay. I think a lot of the rigor and principles behind how you do base pay can be translated very effectively into the area of sales compensation. But for a lot of reasons, that is not always done. And that is, I think, one of the topics we are going to delve into today. So yes, I have been doing this as an independent for about 14 years, working with all sorts of industries and companies. Before that, I was in the corporate world. So I have had the opportunity to develop sales compensation plan designs both within a corporate setting for many years and also on my own. And I have made some observations along the way.

Paul Leon: Hmm. I would also like to put a plug in before we get further into the heart of this about the book you wrote, The Defragmented Consultant, which I have been going through. As I shared before we hit record, a lot of the content from there has been catching my attention, especially parts of your journey and where you have been. Would you like to speak a little bit about, if somebody is new to the book you just published, The Defragmented Consultant, what they would gain from purchasing it? I know I have gotten value out of it. I want to speak to that, and then we will go a little deeper into the content we have.

Scott: Sure. Well, thank you, Paul. It has been out since December. It is on Amazon, and it is available in different formats. I added hardcover not too long ago because, while I thought most people would like the e-copy or the paperback, there has actually been some interest in the hardcover as well. I think what is important to understand about the book is that it is not a compensation analysis type of book, even though I mentioned that I am a compensation planning and design consultant. So it is not a book about that. I am actually writing a follow-up book in a particular area right now. But The Defragmented Consultant is really a book to help encourage folks who want to go into independent consulting. I am 14 years in and counting, but I started to think that a lot of the books out there on this subject are kind of technically oriented. I really wanted to get the message across that everything you have learned in the past, you need to bring forward, but you need to defragment it. You need to make it run more efficiently because, ultimately, as an independent consultant, you are most likely going to be a force of one, and you are going to have multiple clients. So how do you take your past and redefine it to make it more efficient so that you can meet these multiple client needs and have multiple revenue streams? A lot of the book is about that—

Paul Leon: Hmm.

Scott: —and making that kind of transition so you really become this little individual corporation. That is the theme of the book. To me, the greatest insecurity of all is being tied to one firm, and I was for a number of years, and knowing that layoffs come and anything can happen. Everybody is disposable in one way or another—

Paul Leon: Right.

Scott: —no matter what you think of your relative contribution. It is just a reality. This book is giving a little nudge to those folks who have valuable skills and encouraging them to redeploy those skills in a different way so they can actually have more security in their life in the long run.

Paul Leon: And I will be putting a link in the show notes for those who may want to check out The Defragmented Consultant. So for those who want to learn from someone’s expertise after doing this for 14 years and making those tough transitions to make your career more bulletproof, please check out that link. Scott, I am going to read to you a post on LinkedIn that caught your attention.

Scott: Mm-hmm.

Paul Leon: This is going to be the anchor for our conversation today. For those who do not know, and for those who do not follow me on LinkedIn or Scott, I recommend that you do. But here was the post, so I will read it from the beginning:

“What kills rapport with many sales teams?

Not being clear on the commission structure, since the math is the path.

Not having a clear value proposition that solves an acute pain.

Not having a sales playbook that is proven and refined in results.

Not having enough practice.

Not having fun.”

I put in parentheses “the most important one.” There are times when I have had to be there for a brother or sister in arms when they faced an unexpected challenge, and it broke my heart to watch someone put on a brave face to best serve a prospect and do what was required rather than what felt good. And to the sales managers who navigate these team challenges, my hat is off to you too. If you have not been told thank you for all that you do, thank you for all that you do. Be well and have fun.

Paul: Scott commented that we should do a podcast on this together, you and I. What was it about this post that resonated with you? I am privileged to have you back on the show and to keep building a relationship, but I am curious, from a rapport standpoint with you, what was it about that post—maybe one thing first—that stood out to you, if I may?

Scott: I remember one particular experience. I was working with a company, and that company was not maximizing the sales potential of its employees. We had a new head of human resources come in, and we started talking about the sales commission structure. It was a very detailed system that they had. I am not saying that the sales incentive system was bad. It did what it was supposed to do in terms of calculating the sales payments. But everything about that system was complex. And worse than that, for the salesperson, they were spending so much time filing reports and meeting the requirements of the system.

Paul Leon: Hmm.

Scott: Actually, part of their incentive was based on making sure they filed this report and that report, which had nothing to do with actually maximizing sales. It was very complex and very confusing. We fought quite a battle to simplify the sales compensation design and to give the plan participants—

Paul Leon: Hmm.

Scott: —much greater transparency. Because the system, for all of its value and all of its merits, was a very complicated way of calculating their sales incentive. To me, that is the first step of all. You have got to make it simple. You have got to make it transparent. And from there, at the beginning of this call, I talked about how I saw that a lot of the rigor that went into—

Paul Leon: Hmm.

Scott: —making things transparent from a base pay perspective was not translating into a sales incentive system. You can actually use the market to clearly and simply show sales plan participants that if you do this, this is what you will get. And the reason you will get this is because this level of performance is something we value greatly. So if you do that, you are going to get the equivalent of the 65th percentile or above the market competitive rate. If you go even higher, you are going to get this level of the market. So at any time, an individual can look at their simple plan—say it is a revenue generation plan—they have a revenue target, and they can say, “Okay, it is a quarterly plan. In the quarter, if I hit 110% of my target, I will get a $6,000 payout.”

Paul Leon: Hmm.

Scott: And that $6,000 payout represents this percentage of the market. You can briefly explain that the 50th percentile means you are getting paid competitively. But if you do this, you are going to get paid at this percentile, and then the next percentile. For every level of performance, both below and above—

Paul Leon: Hmm. Right.

Scott: —they can see from day one, before they even close the sale, how much they are going to get. And that is incredibly important for the salesperson. They need transparency, they need simplicity, but they also need to know why they are getting what they are getting. I have seen a lot of sales plans where, literally, at the end, they do not know what they are going to be getting. They know what they have been doing in sales, but they do not know until they get that “Oh, I got $4,000, okay.” But you have missed the opportunity because that is the end of the sales cycle. You have to set the expectation of performance and what that individual would get paid before they do a single sale. The reason that letter you put on LinkedIn resonated with me is because I could see my own frustrations in it. Needless to say, we changed that whole system, and eventually the results were much better, along with the reaction from sales plan participants. But literally, they were having aspects of their plan designed to pay them out if they filed reports on time. That had nothing to do with revenue generation. It got way too complex.

Paul Leon: Hmm. If I understood you correctly, they were doing stuff outside of their role. Number one, busy work. Yeah.

Scott: Busy work. Busy work to support the system instead of the system supporting them. It is one thing if you want to have a system to calculate your sales payouts. That is fine. But to put all these layers of complexity in place where the individual salesperson does not know, at any moment, what they need to do—that is not good. If they know what they will get, they will do what they need to do. Because—

Paul Leon: Hmm.

Scott: —salespeople, and I mean this as a compliment, are very transaction-oriented and very business-oriented. They want to know, “If I do this, what do I get?” I think that gets lost in the shuffle. I think the other thing that gets lost in the shuffle is the idea that the math is the path. A compensation consultant can come in and say—

Paul Leon: Yeah.

Scott: —“What is your ideal level of performance?” All right, let us equate that to a certain level of the market. If they hit 140%, and you say that based on their targets that would be difficult to achieve, guess what? We are going to pay that individual, if they do that, at the 90th percentile of market, meaning only 10% are getting paid more than that in the market. That is something the salesperson can grab onto because they are already getting base pay to do the day-to-day things. For the sales portion, it is very important that it is completely linked to a market-based value tied to a performance value that is achievable but takes a lot of the guesswork out.

Paul Leon: I read a study that said 91% is the typical average for salespeople, and that is across all types of companies. There is a lot of data that plays into that. Do you feel, in your expertise, that this factor of having a very unclear compensation plan, one that does not have the variables you clearly discussed, Scott, is why that number is as high as it is across the country?

Scott: In my experience, yes. It is huge. I have seen so many plans where it is just so complex. It is not that these salespeople are dumb or that they cannot understand these types of issues. It is just taking away from—

Paul Leon: Hmm.

Scott: —what they really need to see transparently in order to focus. I think they can even have a great manager. There was a shoutout, a salute to the managers, the sales managers out there, in that article. I believe that oftentimes there is a very intimate relationship—more so than in other functional areas—between the sales manager and the staff. They really do have a connection. But the manager can only do so much. If a manager can have input into what the targets should be, that helps. You do not want me to be the one setting the targets for these individuals. You want the business to be doing that. But you do want me, or someone like me, to help align the values and amounts from a pay perspective and make sure the plan also reflects another point that helps answer your question. It is a big part of it. The other big part is the fact that there are different types of sales roles. There is the sales manager who is managing a team and responsible for the overall results, but they are not doing individual sales, yet they are on an individual sales plan.

Paul Leon: Hmm.

Scott: There might be a component to their plan where they are paid based on the group’s results. But the reality is they are leading other people who are doing the sales, unless they actually have their own individual book of business. I see that the plan does not always reflect the type of role. So when you are looking at a sales plan, it is not just about the plan itself. It is about the role. What type of role is it? What is the typical fixed-to-variable pay mix?

Paul Leon: Hmm.

Scott: To put it simply, how much direct influence does each job in the sales department have on revenue? Some jobs support the sales team. Sales engineers, for example, support the team by providing training and analytical input. They are part of the sales team, but they are not necessarily closing the sales. Then again, as I said, there is the manager.

Paul Leon: Mm.

Scott: The other reason I think there can be high turnover is that the sales representative does not see a career path. They know they are at an intermediate level, but how do they become a senior sales representative? How do they become an expert sales representative? If you are a higher-level salesperson, you should have a more difficult revenue target because you have more experience and should be able to penetrate larger accounts. So if they do not see that pathway, it becomes a problem. The nice thing is, if you have a career pathway and you have expert salespeople who want to become managers, then by the time they are experts as individual contributors, that becomes your bench strength—

Paul Leon: Right.

Scott: —to move them into a management role, if that is what they want to do, because then they can apply all of their sales knowledge to helping others. I think sometimes people want to stay individual contributors, and that is fine. But in the sales area, it is a great way to develop bench strength by growing people into different roles. It is not just, “Okay, you are a sales representative.” There are different levels of sales representatives. They should be paid differently based on their contribution, and their targets should be set appropriately. Obviously, someone who has 10 years of sales experience and has worked with large accounts should get paid more, but the expectation should also be higher for them to close larger accounts, which means bigger revenue. I think there is a disconnect there. People just say, “This is where you were hired. Now go out and sell.” I think career development opportunities are underdeveloped. So it is those three things—but they are all related—that I think create that 91% turnover rate you referenced.

Paul Leon: Yeah. When it comes to showing the math as the path, it is a skill issue. So let me give you a story to see if I can connect some dots. I got into sales in kind of a forced situation. My family was suffering. There was no money for college. I made enough money, went back to college, and for four years I tried to create a shortcut into training. The manager said, “If you are the number one salesperson, you will be a trainer.” So then I did that, and then they said, “Well, if you do it another year.” Then I did it another year. “Well, if you do it three years.” This happened for four years. Then in the fourth year, he goes, “Okay, you just do not have a degree.” And that was it. He said, “I wish I had just told you that four years ago.” Now part of the fault is on me for being ignorant, obviously, to what a good career path looks like. But here is my point, Scott. Is there a type of roadmap for a new salesperson that should be expected? And if we were to write out that roadmap, just as a rough draft together, what would it look like? Here is how long you should be in this role. Here is how long you should be in this role. And if you have been in this role too long, you should probably weigh your options. I feel your expertise would be valuable in designing a roadmap for somebody new who values the company but does not see long-term career opportunities. I was wondering if you had some thoughts or insights there.

Scott: Right. Yeah. Often what I develop is a career architecture. The great thing about career architecture, or job classification, is that it is linked to realities in the marketplace. It does not stand on its own, so it is not completely subjective. Here is the key point: some people get a few years of experience and are very comfortable staying at that level of contribution. There can be someone with 10 years of sales experience who is kept in an intermediate-level role because they do not seem able to close those types of accounts. I think that when you create a career architecture for salespeople, you have to take an extra step.

Paul Leon: Hmm.

Scott: You use the market and say, “Look, we have five levels of sales representative in this company.” Some of them may not all be operating at once, but we have an entry level, an intermediate, a senior, a specialist, and an expert. Within those career levels, there are certain expectations. A lot of those expectations have to do with how much autonomy you have in your daily work and the complexity of your accounts. Revenue expectations also need to be aligned because, again, there needs to be a direct line that an employee at the entry level can see. They should be able to say, “Okay, when I have about five years of experience—really good experience—I should be at the senior level.” And being at the senior level is not because I simply have five years of experience, because we all know people who have a couple of years of experience and operate like they have eight or nine years, because they just have it. And then there are the slow-and-steady people. But ultimately, if you have five years of experience in sales, you should meet all the criteria for a senior salesperson, which includes the fact that your targets are going to be set for someone with five years of experience. At that point, you should be well seasoned and should have been brought along as part of a process where, each year, you are growing in terms of the type of accounts you are going after or managing. That is another aspect to it. I do not want to deviate too much, but within sales itself, it is not just about field sales. Some people are closing new sales. Some people are growing existing accounts. They are doing account management.

Paul Leon: Bye.

Scott: Some people are on the business development end rather than the pure sales side. So that is a factor as well. But getting back to the career-level piece, there needs to be a clear career architecture. What are the requirements to be at a senior level? One of the biggest requirements that is going to distinguish an entry-level person from an intermediate or senior-level person—and that will hopefully resonate with the salesperson—is that, as you become more seasoned, from a business need perspective, we need you to go after these kinds of accounts. You are ready for it, and that generates this kind of revenue. If, in that process, you were doing great as an intermediate-level person but are now not hitting your targets as a senior-level person, that does not mean you should be let go. It means you might need to spend more time developing as a senior, and we might need to make adjustments. Then there are other people who will reach that ability within a couple of years and move on to the next level. And as I said, what happens when they get to the top level? At the top level, they are interacting with the highest-level accounts and closing the highest-level deals. This might be someone who can continue to make a lot of money on the variable pay side. They might also move over and become a manager of salespeople. Or they might want to move from field sales into business development and be on the other end of it. Because there are different paths even within sales. So I think that needs to be part of the discussion as well. It is not just about the levels, because sometimes, in order to go up, you need to go sideways. From a company standpoint, you are going to increase your value dramatically if you know how to do sales, account management, and business development—

Paul Leon: Hmm.

Scott: —which are variations of the same broader function. Some people are really good at finding the accounts for other people to close. When you demonstrate those types of skills, you increase your value to the company. So that has got to be part of the equation. If you are asking me from a career architecture standpoint, I am talking about levels, complexity of accounts, and the type of role. Are you an individual contributor or a people leader? And you are—

Paul Leon: Hmm. Yeah.

Scott: —growing, you are growing. And you mentioned training, becoming a trainer. Sales training is incredibly important in the corporate world. That is another side line.

Paul Leon: Yeah. Yeah.

Scott: What was perhaps missing from that equation is where do you go beyond sales training? Do you become not just a sales trainer, but a director of sales trainers? Do you then go back into applying your training at a higher level? There have to be these pathways. And they are not hard to put together. So if I was coming in, that is what I would do—

Paul Leon: Yeah.

Scott: —but it would also, of course, have to be linked to the business need. The business might turn around and say to me, “Scott, we are never going to need a senior-level person to do this.” But they may want to have all these intermediate-level sales representatives. I had a client like this. What they valued—

Paul Leon: Hmm. Really?

Scott: —was someone who could be slotted in to do business development part of the time, field sales part of the time, and account management. There are slightly different skill sets and characteristics involved in all of those. So you have to make it fit the business need. That is the other piece that is incredibly important about being an independent consultant: to listen and not give them a forced—

Paul Leon: Hmm.

Scott: —off-the-shelf type of solution. It will die. And that is the last thing you want, because that hurts your career and wastes money, time, and effort on everybody’s part. The first thing you have to understand is the business model, because the business model is going to dictate what that looks like. Everybody has different needs. I have worked with very small companies with just a few stores or locations—

Paul Leon: Yeah. Yeah. Hmm.

Scott: —and I have worked with very large ones that have quite a developed hierarchy. But different business needs have different requirements.

Paul Leon: Yeah. I think it is interesting. Earlier in your dialogue, when you were talking about business development, field representatives, and how those are distinguishable, I think a big pain point is not getting your definitions right. I have personally seen companies group the term business development and field representative together as if they are the same job responsibilities. And I feel like, wait a minute, these are two very different descriptions.

Scott: Mm-hmm. Yes. Yes. All the time. Yes.

Paul Leon: Entirely. So it is just very fascinating. I like that you made that distinction. Personally, when I got into sales and I just did commission only, I struggled. It always felt like compensation was the last thing we talked about, almost as if it were some kind of voodoo thing, like, “Do not touch it.” I remember doing a consulting gig, and I said, “In sales training, you should always start with how to collect the money. When it is technical training, you train front to back. When it is sales training, you should train back to front because they need to know what they are going to get paid and how to collect the money.” And the owner said, “That is the dumbest thing I have ever heard.”

Scott: Yeah.

Paul Leon: Right to my face. And I was like, I do not think this is going to work. I did not even want this to come out of my mouth, Scott, but as soon as he said that, I thought, this is never going to work. Unfortunately, I had to close the chapter on that opportunity because I do not feel like a business owner who does not value clarity in compensation and make it a top priority really wants to be in business. That is just my opinion. That is real talk for me. I am curious whether you have had a similar experience at a high level, like, “Hey, 20 years ago this happened, and this was the result.” You do not have to name names. I am just curious whether you have something from your consulting arsenal or experience that kind of supports that type of story—or maybe even contradicts it, like, “Actually, Paul, there is another version you are not thinking of.” I invite you to challenge me.

Scott: Well, as far as the first part goes, you started off by talking about something very important, which was that business development and sales are two different things. I have seen many cases where they will send me a job and call it a sales manager role, and then I look at it and say, “This is business development.” And they will kind of go, “Yeah, well…” And I say, “No, it is not.” There is a totally different market value for this job, and the pay mix is different. Business development people are out there hunting and sourcing opportunities for the pipeline to bring into the sales team. They are paid more on the base side. On the variable side, they may have to wait, because they are in a longer sales cycle. The sales cycle is very crucial as well in determining motivational levels. If a job closes sales very quickly and they are getting paid a relatively low commission, you are going to want to reinforce that with more regular variable payments—monthly, for example. Sometimes even weekly, depending on the situation. But for roles where the sales cycle is much longer, it does not make sense to do that—

Paul Leon: Hmm.

Scott: —because they need that time to close. So I got off on a little tangent there, but that example of what you are talking about is true. As to the second part, it depends a bit on how it is phrased, but what you were saying was correct. We need to motivate the sales workforce, and I do not see how you can do that—

Paul Leon: Yeah. Good.

Scott: —by keeping the sales compensation piece hidden until the very end. There are clients who, for one reason or another, may not even finalize the plan until after the quarter is done—

Paul Leon: Yeah.

Scott: —which to me is like, well, how do they know what they are going to get? And then they say, “Well, it takes time to budget,” and all of that. I say, “Then you should have started in the summer to get it ready,” because that is the kind of thing I often find myself helping out with. What I recommend is literally giving the employee a spreadsheet—a very simple template—that already has all the calculations built in on the back end. So all they do—

Paul Leon: Yeah.

Scott: —is enter their performance level. There is a drop-down box. Okay, did you achieve 63%? Well, guess what? That is less than the threshold of 80% performance, so you get nothing. End of story. They can see that up front. It is not pretty, but they can see it up front. Oh, you got 98% of target? All they do is select 98% of target, and everything prints out.

Paul Leon: Yeah. Yep.

Scott: Say it is a revenue-generated target, and we could get into a whole discussion about how many targets to have or how few. But it literally says to them, “If you do this, you get a payment of $6,000 this quarter,” and they can factor that into their thinking up front. People say, “Well, then they can go after certain accounts and manipulate that.” But again, it depends on how the plan is structured. You can avoid simple revenue chasing by requiring it to be profitable revenue, for example, and put a little bit more complexity into it. But the biggest thing I see—and here is the good news—is that there is a general trend out there in the compensation world toward greater transparency. There are different laws in different states that require employers to post pay ranges for jobs. While that is not happening as much with commissions—they are not saying you have to post the sales commission structure because that is very confidential information to the business and to other businesses—the broader point is that this general culture, and newer generations as well, are asking for greater transparency. And if you are going to be transparent—

Paul Leon: Yeah, I have seen that. Hmm.

Scott: —with sales folks, you are going to have to be more upfront. So I think there is a changing dynamic toward greater transparency that will benefit the process we have been talking about going forward. I can tell you that when you see these “100 Best Companies to Work For,” they are often very focused on providing as much transparency as possible while still protecting the company. And they do have satisfied sales forces. So those sales forces have to have some accessibility and transparency to a plan that is simple to understand and execute.

Paul Leon: I have your permission to play devil’s advocate a little. I am curious, though, about a listener who might hear about a “best companies to work for” list and object by saying, “Well, yeah, but they are more established.” I will give you another story to help provide a launching point. I remember speaking with a small business owner who could not hire a salesperson. He could not do it. He said, “I cannot get it done.” And I said, “What do you think is your biggest challenge?” He said to me, “It takes a special person to just work off commission, and I have not found that special person.” I feel that is a bad way of thinking. I think it creates a mindset of excuses. What are your thoughts on that story? If we could wave a magic wand together and you could have interjected in that conversation, what would your response have been? Something like, “Well, that is not true because of XYZ.” I am talking about the small business owner who does not have all the resources that larger companies have had for decades. I am curious about your perspective there.

Scott: Well, this individual—I do not know all the details, but I have worked with quite small companies that do have some of their sales force strictly on commission. I have looked at cases where they had six or seven people on that structure, and although those people were strictly on commission, they were making something like $90,000 a year.

Paul Leon: Hmm.

Scott: So I am not quite sure how to respond to the claim that you cannot find someone, because there are people working successfully in that capacity. The only thing I would think to ask is, okay, you are paying them strictly on commission, but what is the commission rate? I would need to ask more questions. Is it that they are working only on commission? Fine. But what are you offering them? What is the upside? Without knowing that, I would—

Paul Leon: Mmm. Yeah. I did not ask that. Hmm.

Scott: —be limited in what I could say. Because if it is a lousy commission plan, maybe that is the reason. And by “best companies to work for,” I should clarify that I did not necessarily mean Fortune 100. I meant the “100 Best Companies to Work For,” which may or may not be the biggest companies out there. They simply earned that designation. But to get back to your question, I could only answer it by looking at the numbers. I have seen some commission plans, and when I compare them—

Paul Leon: That is all.

Scott: —to what those people would get in the market, because it is very much a total cash scenario, I understand they are only on commission. But when I am looking at the marketplace, I am looking at what they should be getting in total cash compensation. So if they are on commission only, and the market says that for their role they should make total cash compensation of $100,000 at target performance, then okay, that is good.

Paul Leon: Right. Yeah. Okay.

Scott: And then the question becomes, what is the upside? But if the job he is trying to fill would only pay $40,000 at target performance, then he has a hiring problem. He is not going to hire anyone. So I need to see the numbers.

Paul Leon: Hmm. That is fair. You need to see the numbers. I have two more questions.

Scott: Yeah. I mean, that is the only thing I can think of. The commission might not be attractive—

Paul Leon: Yeah, he did not do his math. The math, there is no path. He did not do his math. No, that is fine. I am curious. So for years I have heard the rhetoric, “Thank goodness I am in sales,” or, “You can be in sales because you can make as much money as you can think of.”

Scott: He might have done the math, and then that is another discussion, but I do not know that for certain.

Paul Leon: As someone who has knocked on doors and knows that world, I feel like there is a little bit of a fallacy in that, if I am adding my own personal perspective. But I am assuming you have heard that too in some circles, more or less.

Scott: Mm-hmm. Yeah, I have. I have an answer for that too.

Paul Leon: And that is what I am asking you. What is your response to that? Do you feel that statement holds water, or is it just simply not true? I am curious from the perspective of an independent consultant who works in compensation when that statement gets repeated.

Scott: Yeah. Well, here is the answer. A good compensation plan works for the employee, but it also works for the company. Here is what I recommend to clients. Sometimes they do not like it, and sometimes they do. But this is my recommendation. Again, by being very transparent, I will show both the employee and the company that if the employee hits this top performance target level, we are going to pay them at the 90th percentile of market. Okay? The 90th percentile. When the employee hits that level, we are going to reduce the amount of commission they earn because they are already at their top market value.

Paul Leon: You are—

Scott: You can still continue to make more, but the increase is going to be dramatically reduced because, from standard performance all the way up to top performance, they are getting big increases for each level of performance to match the market. The reason I like to put a cap on that—in a sense a cap, because again, they can still get paid linearly after that point—is that there might be something wrong with the target setting. If they are hitting 400% or 500% of their target, there may be something wrong with the targets. They may simply be too easy to achieve. So this gives the company a chance to make a decision. If someone goes far above target, the company can examine it. If they find that everything is legitimate and the targets were set correctly, they can decide to pay out at a greater level.

Paul Leon: Hmm. Yeah.

Scott: They can also build in a provision that says anything above this level of performance is considered more of a windfall situation, and we are going to evaluate it. That is why I say it is a cap in a sense. When we are paying at the 90th percentile, it should slow down—not stop completely—but slow down after that point, because we have already been transparent with the employee. “You are being paid at the top level of the market for your role.” It may be that the target setting is wrong, but it may also be that a senior-level employee has been given the target of an intermediate or entry-level employee, and we need time to sort that out. So I think there are limits, to answer your question.

Paul Leon: Right. That is fair. Is there anything, Scott, that we did not talk about that we should have talked about in this conversation today?

Scott: I think we touched on all of the points. I think one of the most important things to take away from this conversation is that while there are a lot of factors—like we went through—the type of role, payout frequency, the level of the salesperson, the targets, all of these different things, that is all in the background being worked out. For the employee themselves, we need to be transparent. Keep the number of measurements and expectations achievable in their minds, make sure those things support the company’s business mission, and make it transparent at the beginning of the process, not at the end of the process.