Building an effective compensation plan is vital to driving performance and growth. An understanding of this relationship is crucial when constructing compensation plans for sales representatives. You need the right carrot to motivate sales reps, and that compensation structure will require a careful balance of dynamic business needs and goals.
The same concept applies when constructing a compensation plan for sales engineers. You need a structure that will motivate performance, reward overachievement, recognize top performers, and attract and retain talent. Addressing each factor is critical to ensure a level of sales enablement and alignment that breeds success. Yet, the process of building a compensation plan for sales engineers can be complex and more nuanced. SEs have different personalities and job responsibilities than sales reps, and thus different motivations and mindsets.
If you're sitting down to plan what next year's compensation model will look like, take some time to reflect on your overarching goals, how they will impact the structure of your SE compensation plan, and whether you need to change behaviors or ramp up junior employees. Let's explore all the points you need to cover to build an effective plan.
Start by asking the right questions
The first thing to do is think about the end game. Every outcome or objective you desire will decide the structure of your sales engineering compensation plan. Furthermore, these goals will determine specific features and functions of the plan, like base-to-variable ratio, sliders, splits, accelerators, and other variables.
To gather the best insight into what your compensation plan should reflect, start by asking:
- What are you trying to accomplish this year? New products or markets on the horizon? Kicking into growth mode or holding the line? If your annual objectives change, so should your compensation plan.
- Did you make your number? Regardless of whether a select few top performers blew past their quotas, things may have to change if your SEs underperformed overall and the company missed its mark. Think about behaviors to root out or reinforce.
- What's the experience level of your team? The structure of your plan needs to take into account whether your employees skew more senior or junior.
- What did the team like and not like? Feedback from the sales engineers themselves is always a plus to have when building out a plan. Although they don't get a deciding say, their opinions on expectations, effectiveness and fairness are valuable.
- What behaviors have changed? If you've seen less collaboration over the year, you may be able to trace the issue to your compensation model. Alternatively, increased collaboration may indicate success with compensation planning.
- How are sales engineering and sales teams segmented? Alignment with the entire sales department is essential. Dissonance in compensation planning may mean engineers and reps work in opposite directions when they need to be in lock step.
- How did the most recent plan work out? Looking at what worked this year and what didn't will help identify a roadmap for the year ahead.
Familiarize yourself with team risk profile
Compensation planning for sales engineering can be tricky because SEs often display fundamentally different personalities and behaviors than sales reps. As such, their attitudes toward compensation often differ. This reality means you cannot simply layer an existing sales rep compensation scheme onto a plan for a sales engineer. Making surface-level changes will not work.
For example, SEs generally have much less of an appetite for risk than sales reps. If your sales engineers are presented with a compensation plan that is variable-heavy, they might balk at the lowered guarantee. Whereas sales reps are expected to hunt for prospects and close deals, the sales engineer position is more of a support role, which naturally attracts people of different talents and perspectives. In turn, an SE compensation plan should reflect the fact that the team is more solution oriented.
That said, every team's risk profile is different. Finding the optimal plan for your team means fitting it to risk appetite. Senior SEs are usually more confident and skilled, which may convince them to accept a higher variable percentage that offers upside. A higher variable weighting can work for a small team of experienced SEs, but likely isn't ideal if those senior members make up a comparably small part of a larger team that includes many ramping team members. These are all factors to think about.
Decide the structure of your compensation plan
Now, onto constructing the actual compensation plan. To begin, you need a blueprint from which to build. In general, there are three common structures, each with its own advantages and disadvantages:
In this setup, each SE is given a quota that he or she is responsible for meeting by the end of the year. The number may be set according to title, region, vertical, product or grouping, and is the SE's to own alone. However, managers need to make sure assignments are properly designated so that team members have enough opportunity to make their numbers.
- Pros: Great for top performers. Motivated and skilled individuals will relentlessly pursue their quotas and crush the work when left to their own devices. This structure can work for companies that have no large or impending initiatives at stake in the next year, allowing them to let high performers loose.
- Cons: Motivating the individual may come at the expense of team-wide collaboration. The situation can become “Every SE for him or herself.” Consequently, assignments are then a challenge or point of internal conflict. Also, if you have a large number of junior employees, they might not get the mentoring, resources or assignments needed to ramp and become productive.
A group of SEs is given a team quota — whether based on region, vertical or product — and together strive toward meeting their shared number. The clearest benefit here is that teamwork means increased collaboration by default.
- Pros: Growing companies can use a team-based compensation approach to cultivate junior performers. When working in tandem with senior members, new hires can pick up on best practices and overall SE collaboration is at a high level. Assignments also become easier, the next up in the rotation takes the work and there's little complaining because everyone is marching toward the same goal.
- Cons: Low performers can sometimes skate by in team settings. Ultimately managers have a responsibility to improve laggards or move on, but team quotas sometimes hide disparities unless meticulously tracked. The absence of individual metrics can make it difficult to recognize the top performers for special recognition, like a membership club or vacation reward.
It's possible to get the best of both worlds with a hybrid structure that blends individual and team frameworks. One way to achieve this is by taking the variable portion of compensation and dividing it into individual and team quotas. For example, 50% of an SE's variable pay could be tied to a personal quota, while the remaining half is dependent on his or her team making its number.
- Pros: The hybrid structure can foster top performers and inspire collaboration at the same time.
- Cons: While you get the combined benefits of individual and team structures, you may also get their disadvantages. Assignment issues can crop up and upside may be limited for top performers. This could annoy senior SEs, leading to lower engagement and performance. In the end, it's up to the manager to maintain a healthy balance and resolve clashes.
Define the specifics of the plan
Once you've settled on an overarching structure, it's time to determine the specifics of the compensation plan. These fundamental elements include:
- Base-to-variable ratio: Whether 60/40 or 70/30, decide the base-to-variable ratio and stick with it.
- Splits: A mechanism to allow one or more SEs to share the commission of a deal. It can be fair if done right — that is, closely tracked with time and performance metrics — as well as inspire collaboration. However, splits are difficult to manage in practice, leading to spats or disagreements over contribution and commission share.
- Management by objective (MBO): This refers to offering incentives for performing tasks or duties that go beyond normal job responsibilities. You can tie a bonus to helping on a project like revamping the demo environment. These amounts must be large enough to be incentivizing, but manageable enough for the budget.
- Accelerators: Determine what percentage increase is available past the quota, whether a fixed multiplier of 1.5x, 2x or 2.5x, or step-ups at 110%, 115% and so on. While accelerators may result in more payouts, it also leads to more money in the door.
Keep your plan updated
Your sales engineering compensation model must be dynamic; it needs to reflect your needs and goals, and the expectations of SEs. That means actively managing the compensation plan. Don't be afraid to try something new or ask the team for feedback. Make the effort to align with sales rep compensation and work with departmental colleagues.