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>The real explanation for why sales people get paid so well is that some really good sales people sold the idea of a highly favorable 'industry standard' model

by jasode 1y ago

>The real explanation for why sales people get paid so well is that some really good sales people sold the idea of a highly favorable 'industry standard' model for enterprise sales. Is there a notable company with enterprise sales that's successful without sales commissions? Companies in the past have tried a "flat salary no commissions" comp structure for salespeople before and it doesn't work even though intuition seems to tells us that it should. The thinking goes something like... "If salespeople are paid a good salary and therefore aren't under any pressure to meet any quotas to earn a high income, that mental freedom should allow them to sell." What actually happens is that fixed salaries for sales positions attracts underperformers who can't sell and simultaneously, makes the job not attractive to "rainmakers" who know they're worth more than the fixed salary. E.g. Pluralsight made the news in 2014 for not paying commissions to salespeople with a list of intuitive-sounding reasons: https://www.inc.com/aaron-skonnard/why-sales-commissions-don-t-work-in-the-long-run.html https://www.inc.com/aaron-skonnard/why-sales-commissions-don... ... But 2 years after that story, they changed their policy and had to pay sales commissions again. They eventually learned what previous companies already figured out: variable pay for salespeople works the best.

theoryofx 1y ago
Yeah no doubt you have to have performance based compensation but that's exactly what equity and bonuses are for everyone else. Sales people are special in getting large amounts of cash comp in addition to equity.
- jasode 1y ago
  >Sales people are special in getting large amounts of cash comp Not sure what you mean by "getting large amounts of cash comp" as if it was a given. Co-founder clarified their base pay is lower. If they don't sell, they won't get large amounts of cash comp. What's the alternative idea you have in mind for compensation? How does one re-divide the pie to be more "egalitarian" to the fixed-salary $200k non-sales employees that doesn't lower the compensation to salespeople and make the job less attractive to rainmakers?
  - theoryofx 1y ago
    Sales people that don't sell just get fired, that's the thing about being such a quantifiable role. So in practice at a startup with a hot product you end up with a team of sales people receiving huge amounts of cash comp. Everyone in in a well run startup org gets performance based compensation in the form of increases in salary, bonus, and equity. There's no reason sales people couldn't be compensated in the same way. The reason they're not is just that it's considered an 'industry standard' to reward instantly with cash. Sales people have themselves a sweet deal they're loath to give it up whether or not it's in the best long-term interests of the company or even themselves. It's not a terrible thing but it does seem an anachronism that will go away.
    - jasode 1y ago
      >Everyone [...] gets performance based compensation in the form of increases in salary, bonus, and equity. There's no reason sales people couldn't be compensated in the same way. There is a reason and it's based on the external market dynamics that the company itself can't control. The potential candidate salespeople can see/compare how other companies pay for sales. Whatever principled stance the company wants to take on compensating salespeople in a different way than "industry standard" e.g. "same salary + same bonus as the devs" or "flat salary no commission" etc ... those idealistic plans still have to compete in the marketplace with other companies paying high sales commissions. Therefore, if the more egalitarian sales comp structure means the "rainmakers" are choosing other companies instead of yours, it's a moot point. E.g. 0xide's comp plan for recruiting good salespeople still has to be competitive with everybody else such as: https://www.cbinsights.com/company/oxide-computer/alternatives-competitors https://www.cbinsights.com/company/oxide-computer/alternativ... Sales commissions aren't an "industry standard" just because they're an "industry standard" type of circular reasoning. It's an industry standard because other compensation methods for salespeople that pay them like all the other non-salespeople don't work so most successful companies converge on paying high commissions for high performers. A lot of non-salespeople don't understand this so it seems like paying commissions for sales positions is arbitrary and unnecessary and therefore, "unfair". As a dev, I used to think sales commissions that exceeded my salary were ridiculous but having attempted sales myself, it now makes perfect sense. Salespeople don't want to be paid like devs with an annual bonus. You have to treat them differently: https://a16z.com/why-must-you-pay-sales-people-commissions/ https://a16z.com/why-must-you-pay-sales-people-commissions/

by jasode 1y ago

theoryofx 1y ago

Yeah no doubt you have to have performance based compensation but that's exactly what equity and bonuses are for everyone else. Sales people are special in getting large amounts of cash comp in addition to equity.

jasode 1y ago
>Sales people are special in getting large amounts of cash comp Not sure what you mean by "getting large amounts of cash comp" as if it was a given. Co-founder clarified their base pay is lower. If they don't sell, they won't get large amounts of cash comp. What's the alternative idea you have in mind for compensation? How does one re-divide the pie to be more "egalitarian" to the fixed-salary $200k non-sales employees that doesn't lower the compensation to salespeople and make the job less attractive to rainmakers?
- theoryofx 1y ago
  Sales people that don't sell just get fired, that's the thing about being such a quantifiable role. So in practice at a startup with a hot product you end up with a team of sales people receiving huge amounts of cash comp. Everyone in in a well run startup org gets performance based compensation in the form of increases in salary, bonus, and equity. There's no reason sales people couldn't be compensated in the same way. The reason they're not is just that it's considered an 'industry standard' to reward instantly with cash. Sales people have themselves a sweet deal they're loath to give it up whether or not it's in the best long-term interests of the company or even themselves. It's not a terrible thing but it does seem an anachronism that will go away.
  - jasode 1y ago
    >Everyone [...] gets performance based compensation in the form of increases in salary, bonus, and equity. There's no reason sales people couldn't be compensated in the same way. There is a reason and it's based on the external market dynamics that the company itself can't control. The potential candidate salespeople can see/compare how other companies pay for sales. Whatever principled stance the company wants to take on compensating salespeople in a different way than "industry standard" e.g. "same salary + same bonus as the devs" or "flat salary no commission" etc ... those idealistic plans still have to compete in the marketplace with other companies paying high sales commissions. Therefore, if the more egalitarian sales comp structure means the "rainmakers" are choosing other companies instead of yours, it's a moot point. E.g. 0xide's comp plan for recruiting good salespeople still has to be competitive with everybody else such as: https://www.cbinsights.com/company/oxide-computer/alternatives-competitors https://www.cbinsights.com/company/oxide-computer/alternativ... Sales commissions aren't an "industry standard" just because they're an "industry standard" type of circular reasoning. It's an industry standard because other compensation methods for salespeople that pay them like all the other non-salespeople don't work so most successful companies converge on paying high commissions for high performers. A lot of non-salespeople don't understand this so it seems like paying commissions for sales positions is arbitrary and unnecessary and therefore, "unfair". As a dev, I used to think sales commissions that exceeded my salary were ridiculous but having attempted sales myself, it now makes perfect sense. Salespeople don't want to be paid like devs with an annual bonus. You have to treat them differently: https://a16z.com/why-must-you-pay-sales-people-commissions/ https://a16z.com/why-must-you-pay-sales-people-commissions/