Is it simply because the metrics are so obvious (i.e., attribute sales to the salesperson's individual performance), that it's easy compared to other roles?
Is it because sales work is so close to revenue numbers, that more thought has been given to compensation, or it's thought of differently (like CEO comp)?
Is it a belief that the personalities of salespeople in particular are motivated to perform better by the incentive alignment?
Is it because performance-based can be a sweeter deal for high performers, which some historical salespeople managed to secure, and they're not giving it up? (Should SWEs be maneuvering to get "points" on the particular products they worked on, rather than it just being something they can mention when they beg for a promotion?)
Something else?
There are industries where sales reps are paid only on commission. The advantage to the company is simple: you don't pay anything to sales reps who don't sell anything. That's where the commission system came from. So, some of this is historical, and, yes the metrics are really obvious. At least the core revenue metric is. But, that's a lagging indicator of performance -- there are endless debates about the leading indicators of sales performance, and none of those are nearly so clear.
Second, most people aren't any good at sales and aren't ever going to be good at sales. The performance distribution is as close to a Pareto distribution as I've ever seen. The sales reps you want -- the ones that bring in 80% of the revenue -- certainly are motivated by "incentive alignment." Actually, they're motivated by being paid enormous sums of money, and they know that if you won't pay them, the competition will.
Third, the sales reps have more leverage than many back-office workers in that their work is very fungible. Or, at least, sales rep believe and act as if they have a lot of leverage. They don't go to school for years or develop deep domain expertise that might not translate to a competitor. They'll happily take their skills elsewhere if they feel there is a better opportunity secure in the knowledge that if you can sell widget a, then you can also sell widget b.
But when I asked an actually really good[1] salesperson about this, they said that it's simply that you can't hire good salespeople on flat compensation because the good ones don't want to subsidise the pay of the less good ones.
So essentially you have to choose between variable comp, which increases the likelihood of short-term focused sales, or fixed comp, which takes to near zero the likelihood of long-term focused sales. Both are bad!
----
[1]: By "good" in this case I don't mean "closes a lot of revenue" but "picks customers that are good for the future of the organisation" (and also happens to close a lot of revenue but that's secondary.)
A similarly-minded SWE, on the other hand, doesn't have the metrics. Either they're at a FAANG and trying to hit their less-obvious metrics for promotions, or they're instead just packing fresh keywords on their resume, and preparing to refresh Leetcode and job-hop every 18 months, to increase their compensation that way.
(I still don't want to do metrics for engineering; I want engineering thinking and working holistically, as a team -- for the interests of the company, even though leadership won't understand most of the subtle differences of what a great engineering team does for the company. The current SWE careerism grinding mis-alignments will have to end, though, once people acknowledge that we really need SWE not to be, as XKCD said, "our entire field is bad at what we do, and if you rely on us, everyone will die".)
And yes, certain personalities are 100% attracted to sales because of the high earnings potential and the direct correlation between performance and compensation.
So if you want sales you create those incentives.
Also, the comp plan described in this article is absolutely terrible. Reps on 60/40 quotas. Having the sales VPs more levered than the reps. Not having a linear base commission rate to 100% of plan (you make sure you get to the company revenue goal by a) setting a realistic goal and b) incentivizing the reps to get past 100% of plan, not by penalizing them until they hit plan.
Reinvest the millions of dollars per month in sales org and reinvest in engineering.
This is such an insane naive take, that it's actually surprising to see it posted here.
We're on a VentureCapital backed message board dedicated to startup, company growth, obsessed with valuations and $$$MONEY$$$, and one of the users thinks this is remotely true.
Companies are not built on technical merit alone. The perfect product and perfect product market fit, with 0 sales or marketing message is going nowhere.
If you have no connection to your customers, your understanding of their pain points will be 0, your relationships with them will be 0, their trust in you as a group of people will be 0.
Are there examples of it? maybe a rapid consumer growth where your 'sales force' is word of mouth among customers, then maybe it can happen, don't bank on your company being able to do that though.
And in B2B it's an entirely different game, no amount of viral word of mouth is going to make decision makers jump to the competition, those switching/churns are won through hard pitches and a coherent product and sales strategy.
The Bloomberg article makes the point that this could be a trend. It was not. I know of no other B-to-B Enterprise Software product which got close to that kind of revenue without hiring Sales.
There are several examples of successful companies who tried this model, and then moved to a Sales model - usually at $30 or $50 million. https://www.saastr.com/eventually-everyone-has-a-sales-team/.
Of course, there's no easy way of knowing how many companies tried this model and failed. But I don't think it was successful too often, because I hardly ever see this model any longer.
Webflow and Shopify are also some products that just sell themselves. WordPress too.
Maybe someone with more of a sales mindset than I’ve got would thrive on this, but it feels to me a bit like a “heads I win, tails you lose” outcome for the company. Doesn’t really seem like you’d lose the motivating factors either by opting for a policy that errs toward the super generous in significant upside scenarios.
The author to be blunt, simply does not know what he is talking about and nobody should listen to his advice on structuring comp plans.
You might want to forward his article over to your competitors, though.
The reality is these quotas are typically created to be either crushingly hard to achieve or the best a financial model predicts your territory can do. Either way, the deck is typically stacked against you, even if the math seems favorable.
Jason Lemkin's blogposts and videos on sales compensation are way more accurate than this.
> I have never in my life seen a plan that withholds the final quintile of variable comp
They might be on a draw. Otherwise, agreed - highly unusual.
Regarding the term On-Target Commission, what is the term you've seen used? Because OTE means "Commission at 100% + Base Salary".
Most companies don't do decelerators but require reps to get permission from their manager for anything out of the ordinary. Examples are deals that require non-trivial engineering time, annual deals with quarterly payments, or 3-year deals that allow the customer to exit at year one. If you want to avoid that permission step, I can't think of many ways to do it without decelerators -- but maybe others can.
The good: setting a target comp that is realistic and explained (e.g. "I expect you to hit $200K 4/5 times with this plan.")
The bad: plans with complicated rules (x% up to $Y in sales with a kicker + incentives for certain deal structures) can be demotivating and incentivize the wrong sales behaviors
The ugly: some high-intensity salespeople might thrive on the chaotic and unpredictable nature of comp structures. I don't love the idea of hijacking the "gambling/variable reward" centers of the brain to get what you want out of your people. Be fair and simple.
The only simpler plan I've ever heard of is just a straight percentage of gross margin, but then the commission management scams move away from the comp plan and into expenses that eat into gross margin...
