Today's article is different from most of my other articles because there is no opening analogy, very little data, and a complete lack of humor. It's such a serious article I was ready to delete it before I clicked the publish button. If you don't like the subject, the content or the writing, it's OK. This needed to be written.
I was watching a local newscast where the anchor did a story about salaries. It began with a student in his broadcast journalism class asking how much he earned. He was averse to sharing his salary with the public, but he conducted some research and learned that GenZ'ers share and compare salaries and tend to know how much everyone else is paid. See this article from George Anders, a LinkedIn Senior Editor, where he shared statistics showing that 81% of Gen Z welcome full candor. Compare that to just 28% of Boomers.
There are three phases to the salary unveiling process:
- Asking how much others are paid.
- Corporate transparency by sharing how much everyone is paid.
- The E in Diversity, Equity and Inclusion (DEI) becomes the norm. Proponents of Equity expect equal outcomes for all - like participation trophies in youth sports long ago replacing the performance awards that are part of professional sports.
But how does a growing movement towards Equity apply to sales compensation?
There are four popular sales compensation plans in use by most companies today:
- Weighted towards commission: A lower base salary, based on experience and/or territory, augmented by a generous percentage of either gross revenue or gross margin. While all salespeople would be paid the same percentage, their salaries might be different and total earnings would be quite different based on overall sales performance.
- Weighted towards salary: A higher base salary, based on experience, territory, and/or size of accounts, augmented by either a small percentage of gross revenue or gross margin, or a pre-determined bonus for meeting and/or exceeding quota.
- All salary. The salary in the plan with the lowest financial might vary based on experience, territory or account sizes.
- All commission. There is no base salary in the plan with the highest financial risk, but the opportunity to earn more than other salespeople is considerable based on a "sky's the limit" compensation plan.
In an effort to appeal to salespeople with varying preferences, some companies offer all four of these plans but most companies offer only one.
According to data from the assessment of more than 2.3 million salespeople by Objective Management Group (OMG), 5% of salespeople are very satisfied with their income and nearly 40% are very unsatisfied with their income. My anecdotal interpretation of this is that I believe the 5% group is satisfied with a salary that is larger than they expected and the top earners, being extrinsically motivated, want to earn even more! All told, 27% of salespeople are extrinsically motivated, which could account for as much as half of the 40% who are unsatisfied with their current earnings. The largest percentage of extrinsically motivated salespeople are found in the top 5% of all salespeople.
When it comes to sales compensation, there is already some vague transparency in place as salespeople are keenly aware that the highest performers earn more than the lowest performers. At some point, companies will be pressured to bring pay equity to sales teams too. It will happen with publicly traded companies first, while private companies may resist for as long as they can. The CEOs of privately held companies are more likely to understand the dynamics of rewarding sales performance as many of them served in sales at some point in their career. The CEOs at publicly traded companies, often coming from a financial, operational or a technical background, may be more susceptible to pressure from under-performing salespeople as well as HR and/or legal teams.
When pay equity comes to sales teams, top performers will be the group that is most affected. While it is too early to know whether their incomes will be reduced, they will be compensated equally with the worst performers on the team. If you are a top performer, and you are no longer earning significantly more than the worst performers in the company, what would you do? Here are some possibilities:
- Nothing changes. As long as my total compensation isn't reduced, I don't care.
- Everything changes. If I am not compensated fairly for my all-star performance, I'm not going to try as hard or work as hard. Why bother?
- I'm leaving. If my performance isn't financially rewarded, I'll move to a company where my performance will be financially rewarded.
- I'm retiring. F**k it.
- I'm starting my own company. I've thought about this for a long time and this gives me the perfect excuse.
There is some anecdotal evidence for how pay equity might play out.
I've trained sales teams who were paid only a salary but with two different plans. In one company, their performance in the base year determined their salary for the next year. That's a plan where salaried salespeople are paid on performance. Those salespeople responded to training, improved, sold more and were compensated for it. In another company, performance did not influence future compensation and everyone received the identical 4% raise each year. Those salespeople did not respond to training, did not increase their sales, and unlike most salespeople I have trained, saw their sales roles as jobs instead of potentially lucrative careers, and lacked the incentive to transition from transactional order takers to consultative sellers. They said, "Why should I? What's in it for me?"
I don't pretend to know the degree to which Pay Equity will come to sales teams or when it will begin to occur. I don't know the percentage of companies that will embrace Pay Equity. I do know that this is a frightening concept. Sales is the economic engine for companies and effective salespeople determine to what degree that engine performs. From cut-throat competition, to self-limiting beliefs, to dishonest prospects, to economic restrictions, to the inability to reach decision makers, selling is more difficult today than ever before. If it wasn't, then everyone would be selling.
If a transition to pay equity on sales teams becomes reality, it won't affect anyone except top-performing salespeople and the top and bottom lines of the companies they work for.
What do you think? Share your comments below or in the LinkedIn discussion.
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