Tuesday, October 4, 2011

How should SEs be Compensated?

What is the best way to pay your Sales Engineers?  Are the SEs part of a sales team, do they work on their own, are they part of services?

Most SEs should be closely aligned with Sales to ensure they maximize the value that they add.

As such, each SE team has the target of supporting particular sales people, who have their own targets that they are aiming for.  The SE team will feel closely aligned if their rewards follow the rewards of the sales team.
Remember, incentives will drive activity. If the SEs find that they actually get paid more doing services, then they will maximize the number of services days they perform.  Is this best for selling your products? You decide.

So reading this article at SalesEngineer.com  - Are you missing out on bonuses? The first thing to note is the kind of compensation to pay SEs.

Fixed compensation
Should it be fixed or variable?  Fixed bonuses are about hitting targets or achieving a result. They are either paid or not.  This can be good at ensuring that the SEs get the result, but if $2.9 million is almost as good as $3 million for the company, why pay a bonus only if they make the full amount. Sometimes this might be written more as an MBO than a commission plan.  Sell $x million, get paid a bonus.

Variable compensation
With variable comp, the main thing to think about is how much does it vary? Should it have a cap? Should more senior SEs have a higher proportion of their OTE as commission?

Typically, sales people have a high commission to base pay ratio.  Many have 1:1 (half their target income is commission). Some have even more, like 2:1 or perhaps even operating fully on commission.
SEs tend to have a higher base pay. The SE relies on the sales reps on bringing in opportunities and developing them to a certain stage.  SEs usually have a longer tenure in the company - and good SEs need to be kept in good times and bad.

SE variable comp can range from 5-50% of their OTE.

Accelerators
Some comp plans provide for accelerators as a higher level of commission has been earned.  This increases the incentive to overachieve, and keeps the SE working harder all year long. An example of this is, after the SE has met 100% of revenue targets, the commission rate goes up 50% or 100%.

Caps
A cap is a limit on the amount of comp to be payed.  This could be a limit on one deal, or limit on the overall amount. If they have a cap, then commission becomes more like a bonus that can be earned incrementally.
The only benefit to a cap is that it means the SE is unlikely to retire off one deal.  However if the total commission has been paid out for a year early on, there is little drive for further activity that year.

Cost of the deal?
The downside of the commission to the company is that it increases the cost of deals.  The sales person takes their commission, and then the SE team, management and anyone else involved might have a share too.  Too many layers of overlay and support for sales means increasing costs.  Sometimes 20% of a sale might be paid out to people on commission.

Group vs Individual targets
The final piece of a comp plan is working out exactly what deals each person gets paid on.  This could be simple for a single SE in a tightly defined territory or company.  However when you have multiple SEs, the question needs to be asked how to compensate the team.
Is it a group pot - each SE gets targeted and measured on group numbers?  Often you will have some SEs more active than others.
Do you work out who worked on each opportunity? Sometimes SE roles mean they make smaller contributions on many deals.  Some deals take many SEs and it is hard to work out who did what.
Subject matter experts could be paid just on their area of expertise
SEs who support particular sales reps could just be paid on that revenue.

Summary
The targets need to be tailored to encourage teamwork, but reward individual efforts well.  As an SE work out what you do well, how to maximize your personal revenue and try to prove your value.
Remember, an SE's value to an organisation is about maximizing the revenue, and regardless of how you get paid, people are always watching and knowing who is making it happen.

Further reading -
Compensation of Sales Engineers
Statistics for SE Reporting
Paying Salespeople
Christine Comaford: How do you keep your Sales team motivated
thesalesengineer.com: Are you missing out on bonuses?

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