Sales managers often wear multiple hats. In some roles, they oversee the overall sales performance of a business line, while simultaneously acting as individual contributors responsible for direct sales of specific products within that line. Compensating such dual-role managers effectively requires a nuanced approach, and a stepped hierarchy in compensation design offers the perfect solution.
A stepped hierarchy ensures that sales managers are fairly rewarded for both their strategic oversight and individual contributions. Here’s how it works:
Base Layer: Managerial Oversight:
The first layer of compensation focuses on the manager’s responsibility for overall sales performance. This portion is tied to the achievement of broader business line goals, such as revenue growth, profitability, or market share expansion. For example, a sales manager overseeing a software business line might receive bonuses linked to total quarterly revenues or customer retention rates across all products.
Example: Imagine a sales manager in a pharmaceutical company overseeing the oncology division. Their compensation could include bonuses tied to achieving a division-wide sales target of $10 million in quarterly revenue, ensuring they focus on the holistic growth of all oncology-related products.
Incremental Layer: Direct Sales Contributions:
The second layer incentivizes direct sales efforts. Since these managers are also responsible for selling specific products, they should earn commissions or bonuses based on individual product sales. For instance, if the same manager excels in selling a flagship software solution, they would receive a commission based on the revenue generated from that product.
Example: Consider a sales manager at a tech firm responsible for both the cloud solutions division and selling enterprise-level contracts for a cloud platform. They could receive a 5% commission on every enterprise deal they close, in addition to a bonus if the division surpasses its annual subscription target.
Benefits of the Stepped Hierarchy
- Fair Recognition: Managers receive recognition and rewards for both their strategic leadership and direct sales efforts.
- Enhanced Motivation: The dual incentive structure drives them to excel in individual sales without neglecting their broader managerial responsibilities.
- Business Alignment: Aligning compensation with dual responsibilities ensures that managers prioritize actions that benefit both their individual goals and the company’s overall performance.
Real-World Example
Consider a sales manager at a consumer electronics company. They oversee the performance of the entire home appliances division while selling high-value smart refrigerators. By adopting a stepped hierarchy, the company ties part of their compensation to overall division performance (e.g., hitting quarterly revenue targets) and another part to smart refrigerator sales. For example, they might receive a $10,000 bonus if the division hits $50 million in revenue for the quarter and an additional 3% commission on every refrigerator sold. This structure ensures balanced motivation across both roles.
Another example could involve a regional manager for a beverage company. They oversee the performance of the entire region’s sales, including beverages and snacks. Their compensation could include a $15,000 annual bonus tied to regional sales growth of 10%, coupled with a $1,000 incentive for each new corporate account they secure for the flagship beverage line.
In conclusion, stepped hierarchies foster a win-win situation for organizations and sales managers, ensuring accountability, fair rewards, and a unified focus on business success.
