Balancing bonus and total package in sales compensation
It goes without saying in competitive sales organisations that compensation holds the key to attracting, retaining and motivating the best sales talent. To balance bonus with total package (base salary, commission and bonus) you need to consider a range of complex factors, including the sales cycle, product type, market dynamics, and company objectives. Keeping your range of plans under control as the market changes and people leave, move or join the business can be a challenge.
In a new annual sales plan, everything can look fair and equal on the surface, with every salesperson having the same OTC for equivalent accounts and territories. But when you look at the basic salary, there’s a lot more divergence, because of different joining dates and different terms and conditions, if you’ve grown your team through acquisition. This can create an unfair situation, with one employee having to sell a lot more goods or services just to get to the compensation start point of their colleague.
The same applies with bonus packages.
Salary management is all about making sure people are paid in salary bands that reflect their experience and skill. In sales, this principle is more difficult to apply. With new sales recruits comes the promise of new business which the CRO depends on.
This can mean that baseline rules and salary guidance are disregarded, in the over-riding interest of growing the customer base.
All of this is understandable practice in the cut-throat world of commissioned sales, but it can seed major issues in talent retention and employee productivity. When these inequalities and tactical decisions are later exposed, there will be an impact on team morale. News of unfairness spreads fast: people feel undervalued, colleagues are suspicious of each other and management, trust in the organisation is undermined. There’s a strong risk of losing good people.
Deploying or optimising your SPM or Total Pay system is a great moment to review your overall approach to compensation plan design. But it’s good practice to review regularly, to make sure inequalities aren’t creeping in and that your strategy and execution are directly supporting employee achievement towards company goals.
Validate your compensation strategy
This gives context for all your decisions about how to balance bonus and total package. Your overall approach should directly support business strategy. For instance, if your organisation is chasing aggressive growth, you might allocate a higher percentage of total compensation to variable components like commission and bonuses to drive short-term performance. Establish your optimal balance of risk versus reward. Lower base, higher commission structures work well in high-growth, fast-paced environments. A higher base and more modest bonus may better suit a long and complex sales cycle.
Balance base salary and variable pay
Base salary should cover essential living expenses and provide a stable income, so salespeople are secure and can focus on long-term customer relationships. In competitive or complex industries (like tech or medical sales), base salaries might make up 60-70% of total compensation. Aim for a commission structure that ties directly to sales performance, with clear, measurable targets. Variable pay often covers 30-60% of the total package, with a higher percentage in commission-heavy, fast-paced sales environments. This means your high performers see a direct correlation between effort and reward.
Set targeted bonus to balance short term and longer-term performance
Performance bonuses should support business goals like quarterly or annual revenue targets, customer retention or new client acquisition. They help keep a balance in rep focus with short term wins that earn commission quickly. Milestone or retention bonuses can motivate persistence in roles with long sales cycles. This could mean sustained performance over multiple quarters or closing a multi-year contract.
Use bonus multipliers to reward overachievement
An accelerator model can reward reps for exceeding targets. For instance, for every percentage above 100% quota attainment, offer a higher commission rate or a bonus multiplier. This motivates high performers to go beyond the minimum targets and maximise revenue potential. They should be challenging but realistic: if you set the thresholds too high, it can be demotivating.
Foster long-term client relationships with non-sales targets
In many industries, success isn’t only about closing deals. Non-sales metrics such as customer satisfaction, net promoter score (NPS), or product adoption rates for existing clients can be very important. Use bonuses to encourage relationship-building behaviours and to reduce the temptation to close deals at any cost.
Review regularly and adapt transparently
To keep your sales compensation competitive, it needs to be aligned with company goals. You may need to adjust total package in response to market changes, business strategy shifts, or new products. Seek and listen to sales team feedback and review your performance data to maintain the optimal balance between fixed and variable pay. Explain the principles when you make changes, so your team understands the rationale and knows that the plan is fair.
The right balance between bonuses and the total sales compensation package depends on a mix of base, commission and bonus built to match the sales role and industry. A flexible approach that encourages a balance of short-term wins and long-term growth usually gets the best results, optimising performance, motivation and retention.
If you need to optimise your SPM solution or deploy one for the first time, get in touch. Our compensation solution experts can help you review your compensation strategy and establish principles that will allow you the perfect blend of control and flexibility in bonus and total package for your sales teams.