Should Salespeople Be Eligible For Annual Salary Increases?

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In many companies, employees are eligible for annual salary increases based on performance and tenure. However, when it comes to salespeople, executives have two schools of thought.

Some argue that salespeople have the ability to earn as much as they want through commissions and do not offer salary increases

Other executives offer salespeople merit-based raises just as they do other employees.

Should salespeople be eligible for annual salary increases just like other employees? Why/why not?

  • Bruce Small

    With a sales force I feel there should be in place annual salary increases, whether it’s entirely merit based or a sliding scale say between 1 and 7% … the commission factor during the year really should have no emphasis on the end of the year increase … the company in large is making an investment in their sales people, rewarding the higher producers and at least acknowledging the others who have produced in a not so high level … leaving a sort of carrot for the up coming year …

    Bruce Small
    Sales management Challenge expert Panelist
    H Wolfson Inc., VP of Sales

  • markhunterthesaleshunter

    Answer lies in the how the comp plan is structured. If the salesperson’s bonus/commission structure is designed to be less than 50% of their total comp then an annual adjustment / review should be the norm. If their comp is made up of more than 50% based on their commission / bonus then there is no need for an annual adjustment however there should still be an annual review.

  • tiborshanto

    I think that merit-based increases, based on defined criteria, should apply to sales people. The best sales orgnizations and their sales people understand that while sales people do have the ability to earn through commissions, they also want sales people to contribute the the greater whole, which often includes actions and impacts beyond just the sale. Not including them send a message that it is all about sales and nothing else, and do what you need to to earn more commissions without concern for any other impacts.

    If you want to foster a culture that is committed to the well being of the organization in all aspects, it makes more sense to have an inclusionary approach and impact, this is one way to do that, while still allowing them to earn for superior sales.

    Tibor Shanto
    Sales Management Challenge – Expert Panelist
    Renbor Sales Solutions Inc.

  • Steve Hall

    Oops, messed that up I’ll try again.
    My answer is the same as my answer to the challenge about whether sales people should have regular performance reviews.
    If you want your sales people to think of themselves as outsiders who are different to the rest of your company and aren’t part of a team working towards a common goal, then don’t give them annual salary increases.
    If you want them to be part of the team, treat them like it.
    Or to put it another way, yes, they should get annual salary increases.
    Steve Hall
    Sales Management Challenge – Expert panellist (but not so good with posting and editing)
    Technology Sales & Marketing

  • aliceheiman

    I am in favor of completely changing the way we compensate
    salespeople. I don’t have the answer but the current base plus commission or
    straight commission has many disadvantages and doesn’t give us a good way to
    train salespeople who might be very good if there was more time to learn.

    If you are paying a base then the base should be a range
    based on several criteria. Once the base is established, then salespeople
    should be eligible for an annual increase just like everyone else in the company.

    Keep in mind, money alone is never motivating. Salespeople,
    like most employees, need to be appreciated on a regular basis. They need to
    see how they are an integral part of the success of the organization and they
    need to understand their career path and how they can continue to develop
    themselves for a future role.

  • markallenroberts

    Borrowing from an old native american proverb:” the wolf you feed is the one that grows.”
    Compensation requires the same amount of planning and strategy as any other parts of your business.
    I believe merit increases and a variable compensation both have a place with salespeople.
    The merit component is about performance and “how” you drove your performance, and rewarding long term objectives.
    The variable component is hopefully designed to reward the behaviors you want.
    I try to design the total comp model to hit and slighting pass the national averages for the role at 100% of goal achievement.

    Mark Allen Roberts
    Sales Management Expert Pannelist
    No Smoke and Mirrors sales

  • Janet Boulter

    Yes- I believe salespeople should have a base compensation with annual increases just like all the other employees. The goal of compensation is to recognize and reward people for their contributions to the organization and it’s growth. It is important that sales people view themselves as part of the team- and that they provide the same valuable contribution to the organization just as all of the employees. All companies must have a well defined, strategic compensation plan to facilitate growth and reduce employee turnover.

    Janet Boulter
    Business Advisor/Sales Management Contributor
    Center Consulting Group

  • Vince

    Yes, salespeople should be treated like other employees and be eligible for annual salary increases. Why would you want to separate them from the rest of the company that is eligible for an annual salary increase?
    It’s true that salespeople have the ability to earn as much as they want through commissions, however there are some situations that are out of their control, for instance, a large client moves out of their territory, or is sold to a different company that does business with your competitor. The salesperson’s commission is likely to decrease because of these situations, and it takes time to build up the base of business, growing revenue doesn’t happen overnight.

    Salespeople should get an annual salary increase based on several factors,
    and in the long term, turnover should not be a issue with a happy sales team.

    Vince Melograna
    Sales Management Challenge – Expert Panelist
    The Revenue Accelerator – Vice President of Business Development

  • http://www.AcumenManagement.com/ Ken Thoreson

    I would not make them eligible for annual salary reviews, most employee’s can not impact their incomes as directly as salespeople and therefore annual increase considerations make sense. I would analyze if your compensation package or base salary’s are competitive and need to be changed.
    Ken Thoreson
    Sales Management Challenge Expert Panelist
    Acumen Management Group

  • Brian Maas

    I am less concerned about an annual salary review of sales individuals and instead support an annual compensation review of the sales department. I agree with annual salary increases only if it is required to stay competitive in the marketplace and attract and keep top talent.

    In order to give a salary increase, It might also depend on what other factors you consider that are non-sales related. If the rep is hitting their number, you might take into account how well they support the core values of the company, support a team atmosphere, or contribute to the overall mission and vision.

    Brian Maas
    Sales Management Challenge – Expert Panelist
    Watermark Learning – Sales Director

  • DianeHelbig

    I believe salespeople should receive consistent reviews of their performance. However, I believe that their commissions serve as wage increases. They do, indeed, have the opportunity to earn as much as they can depending on how well they sell. This is provided the commission structure is set up to encourage and award sales.

    Diane Helbig
    Sales Management Challenge – Expert Panelist
    Seize This Day Coaching – Business Coach

  • http://xoombi.com/ Doyle Slayton

    I’ve never agreed with leaders who think salespeople will drop in performance when we pay them more. The best salespeople are driven to continuously improve and reap the rewards of success. Without question… I’ve always been a big believer in salary increases based on performance. If we are willing to increase a salesperson’s quota every year, we should also be willing to increase their base salary.

    Doyle Slayton
    Sales Management Challenge Expert Panelist
    CEO, Co-Founder – xoombi

  • http://batman-news.com Robert White

    i feel, being at one time on both sides of the fence ( owner and now employee) every EMPLOYEE needs to be treated the same, a COLA raise (1-3% ) tagged to the CLI (cost of living index) should be freely given if the sales person is hitting his.her mark. i have been uncompensated for the COLA for all years employed (7) and feel that even tho i have increased the sales 100% in those 7 years and make well over 200k i still should be approached every year about my performance and about the steady eddy that i have been producing. i’m seeing appx 5% of gross at those numbers but its getting to saturation. unless more products keep being launched and become home runs, my numbers will stagnate and then what, they (current owners) have received millions and buy new toys and houses and etc, and i understand they take the Risk also BUT a Valued employee who is constantly over looked can be a dangerous scenario too. i feel that they take things for granted a lot of the time and think that i make too much now anyway. So im even afraid to ask for a raise for fear of “what, you don’t make enough” attitude or that i’m not grateful and am asking for more. i feel no matter how much i make… if i do as good as i have for you… that they should come to me… as owners and say thank you and here is a car allowance or a little something every year for a great job done. some years my sales have topped 33% and i get nothing but FEAR. if i ask, which i have… its like really??? am i not happy, maybe if we are too small you might want to look elsewhere. that was not part of the original deal and they know it. any thoughts.?

  • http://www.salesarchitects.com/ Lee Salz

    Sales compensation is an interesting and challenging conundrum for executives. The debate over whether or not salespeople should be eligible for annual salary increases is short-sighted.

    Salary is a component of an overall sales compensation plan. The earnings methodology should be structured to both attract and retain top talent – and should address both salary and incentive compensation.

    I’ve seen effective sales compensation plans that included as well as not included salary increases. The key is to show opportunity to the salespeople to earn the dollars they seek through achievement of business objectives.

    Lee B. Salz
    Sales Management Challenge – Expert Panel Chairperson
    Best-selling author of “Hire Right, Higher Profits”

  • Walt Ogburn

    As a number of others have indicated annual salary increase decisions have to be considered in the context of the total compensation plan and the role sales people play within the company. I view salary as the commitment the employer makes to the reps to assure they have the tools to be successful and in return the employee commits to doing the right things routinely to ensure long-term sales success not just short-term “making quota”.

    I work in a B2B industry where sales people have limited numbers of customers and the products are used routinely so the sales keep flowing every month the customer stays with the products. This means the commission or bonus part of compensation assumes customers keep using the products. If bonuses are calculated based on sales above quota the rep is likely to spend most of the year not knowing where they will end the year. A competitive salary (adjusted regularly to reward “doing the right things”) allows the rep to focus on maintaining current business and laying the groundwork for new business.

    The other component of the compensation is how quota is set and by whom. If quota is “handed out” with no reflection on the territory or customer mix, the reps may feel the quota isn’t realistic and there will be years they know they have no chance to earn a bonus — thus salary becomes very important.

    Since in many compensation systems the only “guaranteed” income is the salary so it’s imperative the salary be competitive to recruit and retain the right people. Existing reps generally know the salary range of new hires. If they know they may earn only their salary on a given year, they don’t really like a new rep getting paid more their first year than they are making with their tenure. Salary increases for existing reps have to stay fairly close to the rate of starting salary increases over time.

  • http://www.keiferconsulting.com/ Geoff Keifer

    Interesting question, without a unique answer. Under the assumption that a salesperson’s earnings are directly driven by commissions on sale or margin, and further that inflation applies to the business and margins are stable… why make any adjustment?

    In situations where there is a base, to cover activities a salesperson may not recognize always as being particularly profitable to themselves, (but are critical to the company), a bump might be advised for that portion.

    In reality, top salespeople are driven, and strive for the sale… or to be the “top dog”. Salary increases for marginal performers are not likely to improve results.

    Geoff Keifer

    Sales Management Challenge – Expert Panelist

    Keifer Consulting

  • http://www.EdgeEnabled.com/ Albert Whipple

    I agree what all the comments that yes salespeople should receive merit increases. Underlying these comments is ‘why’? Every study I have ever seen suggests the two primary drivers of sales performance in salespeople are compensation and ‘recognition’. Merit increase are a way to recognize employees, salespeople should not be any different.

    Companies with larger sales organizations often have multi-level sales positions that demonstrate not only tenure but accomplishment. I myself started as an Associate Sales Engineer with a company called Tektronix. There were 4 salesman levels: Associate Sales Engineer, Sales Engineer, Senior Sales Engineer and finally Consulting Sales Engineer. I got as far as Senior Sales Engineer and then went into management.

    Consulting engineers were tapped for feedback by management and provided a path for those very accomplished salespeople that did not want to be managers. They often had more impact on the company than many in sales leadership. My group had only 4 Consulting level salespersons out of about 600 salesmen. It was literally a ‘life goal’ for some. They were very respected in the company for their experience and well compensated.

    Albert Whipple
    Sales Management Challenge – Expert Panelist
    EdgeEnabled, Inc.

  • Dawn Deeter

    Yes, they should be eligible. Why not? As Doyle says in a previous comment,
    salespeople are driven to improve and earn rewards. If they feel like they are being treated fairly and have many opportunities, performance is likely to continue in an upward trajectory. Everyone wins!

    Dawn Deeter-Schmelz
    Sales Management Challenge – Expert Panelist
    Kansas State University – National Strategic Selling Institute
    Sold on Sales: https://blogs.k-state.edu/nssi/

  • http://www.viewturn.com/ Scott Meier

    I have a simple answer to this complex question. They should if the compensation plan allows for it. For instance, if you are paying sellers on an MBO, build the previous years earnings into the base for the new year, allowing for growth. Let me explain.

    If the previous year was draw/commission, then take 65% of money earned and use as a base, taking the remaining 35% and creating an MBO (based on objectives you would like them to hit each month – new business goals, retention goals etc – and base all against an annual budget. Add another 10% commission on all billed above goal as the “raise”. This accomplishes a couple of goals. The carrot is the added commission, and the “salary” of 65% of previous years earnings allows them a base for comfortability. Now you are working toward increased billing and better habits to make that happen.

    Very successful in cases in the past..

    Scott Meier
    Sales Management Challenge Expert Panelist
    President/COO Viewturn.com

  • Jerry Holl

    I think salary inceases along with the rest of the workforce are appropriate. It’s a way of letting your salespersons know you value them with a concrete action beyond words. And, although theoretically, the sky is the limit on what a salesperson can earn, the practical reality is that with a salespersons territory (limitation) and the existing product portfolio, the sales manager can pretty accurately predict a reasonable earnings range their sales people will hit. And so with a portion of that range being salary (or draw) — the sales manager can help keep a reps proportions in balance through salary increases. Most reps appreciate that and it breeds goodwill.

    Jerry Holl

  • Sava Bobchev

    Happy New Year 2015 everyone !!!

    This is a great question! Thank you for raising the topic.

    I think that both lines of thought have their good arguments. However, I am a big fan of positive motivation, so I believe salespeople should be eligible for any kind of motivation when deserved. As we all know, motivation shal always be SMART, i.e. the rules should be crystal clear upfroont, so everyone – management, salespeiole and the other employees in the company know who may get what and why. When annual slary increase is logical, based on clear criteria and performance – added value for the company and the team – it is well deserved and salespeople shall not be exempt. If we want more sales, we must motivate our sales force. This is valid for every department and employee – based on added value.

    Salary increase should not be automatic, though. Like every bonus, it should be given for the extra mile the person has gone in the past year.

    On the contrary of the monthly bonuses for performance, salary incerase is something long-term. It gives the salesperson extra stability, so it must be very well deserved. Good salespeople like such challenges and would do anything to deserve it.

    Best of luck in 2015 !


  • Chuck DeVita

    Base Salary is intended to support basic living costs. If other functions are getting raises due to inflation, why not sales people?

  • Zoltan Jantay

    I think it depends on the products and services and also on the local business culture. If you are selling high value, complex solutions, I believe your salespeople need to have pricing authority. In this case you also have to maximize the discount they can use. Also in one country the clients expect higher discounts while heavy bargaining is part of the culture (like Italy), in others customers are happy with lower discounts (like Germany).

  • James Mayhew

    Salespeople should have little if any authority – what they should have is influence. Ultimately once you get to the price negotiations the Salesperson’s role is to not only negotiate with the potential buyer but also with their own organisation. The role becomes more akin to a financial advisor – guiding both parties to a place where they can get the best return possible whilst protecting their own commission. Typically the buying organisation is looking primarily at their year 1 spend (software, support, services) as a single figure, while the selling organisation is often weighting certain elements more or less heavily, with the Salesperson more or less compensated depending on the mix they negotiate. The real challenge comes when the selling organisations protects certain elements of the sale more heavily than others if this does not align with the Salespersons’ compensation – by say refusing to discount support and only discounting software when the seller only gets compensation on software. Even with no authority on price the seller will get to know where they can and cannot influence the price – the more skilled negotiator will use this knowledge to guide the commercial terms to a place where both the buyer and seller will get as close to the deal they mostly want as possible, while maintaining their compensation. Ultimately the ‘best and final’ position must be determined at a level above the seller, where the level of risk of losing the deal is assessed and the consequences accepted. Although we also know that the chances of the consequences being accepted are slim if price becomes the stated reason for not buying – then the seller will of course stand accused of not selling the ‘value’.

  • http://www.viewturn.com/ Scott Meier

    This question really has a lot to do with the business. If it is a “hard good” like furniture, equipment, food, etc., the margin’s would have a lot to do with the flexibility in pricing. If it is a service like marketing, advertising, even medical care, there would be more flexibility. It really comes down to the management style of the organization. I feel that parameters should be clear enough for the sales staff to “negotiate to close” if need be. As there are two types of business to be closed – either relational or commodity – the type of business would determine if there is price flexibility. Relational business is not dependent on flexible pricing. Obviously if your product is sold like a commodity, the sales person in the field should know the operational pricing parameters. If pricing becomes an issue, tie it to tiered commissions. If they give away the product, then reduce the commission on the sale. In the end, the company has to stand behind whatever the sales person has quoted the prospect. Mistake happen – once.

  • Dave O’Holleran

    I’m leaning toward Tibor without knowing the specifics mentioned. As a sales manager, if their discount hurts me it should hurt them too. However, if they think they can justify or leverage a discount let them sell me on it. However, if you are going to pay on margin it should encompass all categories of sales (not the same margin, but the same philosophy). I once worked for a company that paid commissions on margin for equipment, but not on subsequent consumable supplies for the equipment. You can imagine how the sales force negotiated with customers and what that did to their long term supply margins.

  • Richard Hilliard

    I am extremely surprised at the missing link in this
    discussion. It is called profit. In my Industry, the Construction Service
    Industry many companies are working with a 2-3% profit margin which is
    ridiculous. To drop or give sales people the ability to drop price by 25% will
    kill the profit and company. Many other companies are between 7-12% profit
    margins. 10-20% profit margins are the
    goal of many companies in today’s market. You must understand your pricing structure that will determine
    what you can and cannot do.Frequently these same companies do not know or
    understand their true over head in order to set the proper pricing structure
    for their companies and any kind of deviation from the price is a killer of their
    profitability. What is necessary is the ability to teach the sales people an
    understanding of overhead and profitability. This may give them an
    understanding of selling properly and at the rpice that is necessary to
    maintain a level of service that you can give to your clients.

    Of course the sales person’s pay should be based on profitability
    and not performance.

  • Leedon Elwood

    I can only write for the discipline that I am in, which is Real Estate, here a sales person has authority and influence. Authority as in the authority to be allowed to “say” but using the influence of “what they say”, ultimately the salesperson has a immediate impact on the receiver and what price or prices are achieved. This has three key elements of what the sales person should have: Belief, knowledge and rapport.

    Overall bottom line is the price is about personal opinion, a price is something what someone believes it to worth (to them), it is what’s believed to be correct to the person who is paying.

    Belief is regardless of a sales person opinion of the price, if the salesperson does not believe then how do you expect others to follow ? Belief that you have done the best job you can to be in the selling position that you are in, belief that you have that best product available to be in the selling position you are in, belief that you work for the best company in order to be in the selling position you are in, because of your natural persona, people will buy into that belief.

    Knowledge gains trust, the more knowledge you gain from your prospect along the way in your selling process is similar to removing a jigsaw puzzle from the box and piecing it together, each jigsaw piece is a snippet of information, in crime situations, the criminal does not get convicted without the evidence, although we have exceptions to the rules, just like sales every person you deal with needs the piece of mind the person they are dealing with knows what they are doing, again like a defense lawyer !

    Rapport – no one really wants to deal with somebody that they do not like, but, just sometimes, we have too ! we are talking about increasing our sales percentage and opportunity, of which, rapport brings you the opportunity that we did not always feel were possible, rapport is the relationship with the prospect, it is not what we think of ourselves that matters but to understand how we are viewed in the mind of others that counts !

    In the words of jeffrey gittomer – make a sale and earn commission, make a friend and earn a fortune !

    The “Authority” is the trust we give to the sales person to do the best in that selling position and the “influence” – of what is used by the sales person to stabilize that position.

  • Scott Stroder

    Option 3. Every commission plan should be tied to a well defined and understood profit metric. If a certain account and/or individual cannot be cracked with your companies ROI expectations, then you as the sales manager need to be directly involved and together you reduce the pricing, if this is determined to be in everybodys best interest. All salespeople need to be tied to profit metrics, whether it be genuine gross profit or KPI expectations. These should be regularly communicated, monitored, and followed up to determine market fluctuations, but also to stay involved in the salesperson’s life for all sorts of behavioral reasons…

  • DCW

    Wow. So many comments where the sales person is immediately assumed to be the person who’ll give away the company profits are made on this subject! What does that mean? To me, it means that many don’t truly understand the Sales role or have unreal expectations of what a Sales person should do to be successful for your company. If you expect your Sales person to A) Bring qualified opportunities to your company, B) Bring market information on pricing, value, customer’s risk assessments, information on what it takes to close the deal and many other factors and don’t listen to them about where pricing should be, then why have a Sales force? A good Sales person should already understand profitability, they understand what your value proposition is AND what your competitor’s value proposition is. They understand the role your company may or may not play within your customer’s purchasing habits. His or her input is crucial to your success. Sales people need to understand what the “bottom line” price is that will make your company happy. Of course they should strive to get more if possible but in many cases, you are competing against companies who are “just as smart as you with just as much to offer as you” or even against companies who have more to offer than you. Therefore, if he or she is successful at the lowest price that management AND Sales determines is competitive and profitable, then everyone should be happy. Give them a range where you’d “like the price to be” and an acceptable “we want this order vs. our competitor getting it” price. Nothing below that is acceptable. If he gets an order under this philosophy, your company has won and your sales person has performed his job in the manner you want him to.

  • Steve M

    Ladies and Gents, I have read with interest some of the posted comments and it strikes me that ‘Sales People” in this discussion context have been lumped into the mass of faceless individuals. Is it not the first step to distinguish between the average, good and bad sales people ? be aware and confirm their performance, knowledge and experience and allow the relevant level of pricing and margin authority and responsibility which is in line with the companies financial unit, sales and margin targets.

  • James

    I think it depends on the business. In some industries commission only or base plus variable may make sense.

    For example, a high growth industry where there is a lot of product demand and inbound leads qualify for a base + commission without an annum merit program. Other more high demand sales jobs like tradeshow sales or account maintence might fall into this category. The idea is about opportunity cost – if you can fill seats and generate 5% less top line revenue but reduce costs by +15% then stick with the low risk better margin.

    In other jobs, inside sales or cold calling enviornments where the product is difficult to move and the job is a wear on morale a base increase is probably needed. Telemarketing type sales jobs are high stress and high turn over. If you are lucky to get people that enjoy that work then keep them around.

    It has less to do with what right or wrong and everything to do with what the market will bear.

  • scott hanson

    May depend upon the comp mix between salary and commission. For highly leveraged salary reps, it is probably more standard than those whose comp is leveraged on the commission side.
    But regardless, salary increases might want to be considered for the following 2 reasons:
    1) to stay competitive in the market for sales talent
    2) increases are based upon sales performance. Hit your number (as one criteria) and you are eligible. I am not an advocate that reps are “entitled” to salary increases. Rather, if considered, it should be tied to performance. That then becomes a way to develop senior reps and maintain retention and loyalty