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Sales Compensation

Why CHROs should care about Sales Compensation in 2024

Sameer Sinha
CEO & Co-Founder At Visdum
Published On:
September 2, 2023
May 1, 2024

In recent years, the role of the CHRO has evolved, shifting from traditional HR concerns to becoming true co-pilots of the company's strategy. The new generation of CHROs not only focuses on business-related topics but also plays a crucial role in alleviating pressures and obstacles faced by the business. 

They advise on organizational transformation and define recruitment processes, expanding beyond the traditional administrative tasks of HR management. Given the importance of attracting and retaining top sales talent, the CHRO's involvement in creating and managing sales compensation plans becomes vital to motivate and support the sales staff in achieving their goals.

The Chief Human Resources Officer (CHRO) makes sure that they can guarantee equitable, competitive, and align organizational goals. But what attaches a CHRO to the sales compensation plan?  

4 reasons why CHROs should care more about Sales Compensation

1. Ensure Employee Motivation and Performance 

We all know that Sales compensation plays a significant role in motivating and incentivizing sales representatives to achieve their targets and exceed expectations.

When salespeople believe they are being fairly compensated, they are more motivated and produce better results. If not, they will spend most of their time doing things such as shadow accounting that take time away from "selling".

Sales motivation is directly related to sales performance if the sales team is not adequately motivated to sell the product because they are not being fairly compensated, it will impact their sales performance. 

In a survey conducted by the Sales Management Association, 91% of respondents stated that sales compensation is a key driver of motivation and performance within their sales organizations.

Well, in that case the CHRO needs to work with the CEO and other executives to develop a new sales compensation plan that is more closely tied to individual performance and achievement. Sales compensation plans provide a clear framework for tracking and evaluating sales performance. CHROs can use compensation data to measure individual and team performance, identify top performers, and assess areas for improvement. 

2. Hire, and Retain top sales talent 

Sales compensation directly impacts the company's ability to attract and retain top sales talent and replace low-performing employees

According to a study by Glassdoor, 79% of job seekers consider salary and compensation as one of the most important factors when considering job opportunities. Offering competitive sales compensation can help in attracting and retaining high-performing sales talent.

The CHRO must ensure that sales compensation is competitive and appealing to not only the top sales reps but also to those who are trying hard to hit their sales targets

a. Attract Top Talent

The key to attracting high-performing employees is by informing them about the compensation plan as the reps are mostly dependent on compensation for their financial support. Competitive salary packages attract top salespeople but so is sales compensation.

A study by Harvard Business Review found that companies with well-designed compensation plans were more successful in attracting high-performing salespeople compared to those with less attractive plans.

Let’s say you need to hire a new sales representative for your company. You have two candidates who are equally qualified in terms of education and experience. However, one candidate is more interested in the company's sales compensation plan because it includes a significant commission component and opportunities for bonuses based on individual and team performance. The other candidate is more interested in the company's benefits package and flexible work arrangements.

There is no doubt that sales representatives are often motivated by the opportunity to earn more money based on their performance. Therefore, you need to communicate the sales compensation plan during the hiring process.

b. Retain Top Performers

Sales reps who feel underpaid or unappreciated may leave and reps who are unable to contribute to company growth will be replaced. 

A study conducted by the Aberdeen Group found that companies with strong sales incentive programs had a 17% lower voluntary turnover rate among salespeople compared to those with weak or nonexistent programs.

A fairly compensated sales rep will work twice harder to hit the target. Therefore, give extra attention to your top sales performers to have a positive impact on overall sales performance and revenue. 

Sales reps work for three things -Money, Competition, and Recognition. While reps get money in the form of bonuses and incentives, still they look for competition (through sales leaderboards they can see where they stand in the organization) and Recognition (Monthly and quarterly feedback meeting, recalling every rep’s progress can help them feel recognized) when it comes to designing the comp plan that provides them with incentives for the closed deals: 

  1. Design a commission plan that is tied to both individual and team performance. This will allow sales reps to not only benefit from their own sales efforts but also from the success of their colleagues.
  1. Implement a retention bonus for top performers who stayed with the company for a certain length of time. This will give them a financial incentive to stay with the company and continue to contribute to its success.

3. Create a Transparent company culture

Structured compensation i.e. transparent, consistent, and rewarding performance maintains a positive and motivated sales force.

It is very obvious not only for SaaS but for any other industry, to reach a certain height of success you must have a transparent sales culture. This includes making sure employees understand the company's values, objectives, and goals and feel empowered to help it succeed.

So, what makes a company culture transparent?

  • Communicating regularly and openly with the sales team 
  • Ensuring that company policies and procedures are clear and transparent 
  • Providing training and development opportunities
  • Creating an open and inclusive work environment 

While creating a sales compensation plan company must involve CHRO to closely analyze and ensure that the plan is fair, transparent, and aligned with the company's values and culture. Although this is a cumbersome job, still with the help of sales compensation software, CHRO can track the performance of the reps, and reps can track their earnings

4. Develop a Strong Employers Brand

CHRO can contribute to a culture of collaboration, aligning sales efforts with the overall business strategy.

When it comes to building a positive reputation as an employer, a CHRO (Chief Human Resources Officer) can create a huge impact. The live example would be Salesforce. The CHRO there oversees the implementation of a sales compensation plan to ensure that it is competitive, open to employee input, and designed to bring out the best in each employee. This leads to retaining outstanding talent for Competitive benefits, professional growth, and work-life balance.

Not only this CHRO also needs to ensure that every employee is satisfied with the compensation plan. The Chief Human Resources Officer at Salesforce also contributes to a pleasant work environment by making adjustments to the sales compensation and promoting cross-functioning between marketing and sales. 

According to a Salesforce study, organizations that prioritize cross-functional collaboration experience 38% higher sales win rates and 208% higher customer retention rates compared to those with low collaboration levels. 

It is believed that CHRO communication can help employees feel more invested in the firm and its values. Therefore, updates, employee surveys, and town halls can be very useful. 

In conclusion, Sales compensation directly impacts the motivation, performance, and retention of the sales team, which in turn significantly influences revenue generation for the organization. By investing time and resources into designing and optimizing sales compensation plans, CHROs can align incentives with business objectives, attract top sales talent, drive sales productivity, and ultimately boost overall company success.

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