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You Get What You Pay For

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Living in the midst of the growth in the DFW market is a once-in-a-lifetime experience. It seems like every week another major company is moving its headquarters to or consolidating its inside sales operations in the Dallas market. But one thing continues to surprise me: It seems so many companies think that the best way to hire is to develop a low compensation plan with low base and substantial at-risk compensation so they can hire more staff and see what happens! How does this even make sense?

I have no problem with putting a large portion of the compensation at risk. But people need to do their homework on market salaries and need to consider basic economics. If you think like an accountant, you will lower your base and lower your total compensation so you can afford to hire more salespeople. “Boy that sounds like a great idea!” said no one who has studied and passed Economics 101!

I see this time and time again. Companies plan to ‘ramp up’ and put their compensation at the lower end of the market range and hope they can attract the best sales talent in the area. Do your homework, everyone!

So here is your homework. Let’s start from the corporate side. You have a $1 million expansion budget. So you can either have 20 new salespeople at $50K per person, or 10 new salespeople at $100K per person. More often than not, I see organizations decide that the lower salary is the better move.

But try this thought experiment. You are a high-performing salesperson and are looking for your next opportunity. You make around $75K right now and run about 150 percent of quota at your current $50K on-target earnings (OTE) job. You find Company A that is hiring 20 people at $50K OTE and Company B that is hiring 10 people at $100K OTE. Assuming all else is equal, is there any question which company the top performer is going to choose? (Don’t you wish your econ prof at college made the questions this easy?)

While a Company A might occasionally “get lucky,” it is most likely not going to attract the best talent when it doesn’t pay for the best. Sure, it is harder to identify the best, recruit the best and retain the best. But at the end of the day, it is harder to churn the lower end of the barrel.

So when it comes time to grow your organization, determine that you are going to be a world-class organization that recruits, trains and retains the best salespeople in their industry. To do this, you must determine the going rate in your field and make sure your compensation structure will allow you to compete in the field of play.

Don’t get caught in one of the Deadly Sins of Sales Orgs by paying little and recruiting too many.

Howard Dover

Dr. Dover is a marketing and sales professor at the Naveen Jindal School of Management. As the director of the Center for Professional Sales at JSOM, he has a real passion for coaching students and helping them reach their goals. Read more articles

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