All companies agree that first-line sales managers play a critical role. They are the sales reps’ strongest connection to the home office and set the precedent for how their team will perform.
First-line managers are responsible for both leading their team and growing sales in their geography or accounts. Companies differ, however, on which of the two responsibilities is the highest priority—and this, in turn, impacts sales compensation design.
When the top priority is to drive sales, the first-line manager’s sales compensation plan often mirrors that of the sales reps. If the reps receive a goal, then the manager also receives a goal that is the sum of their reports. If the reps receive a commission, then the manager receives a commission as well. In these cases, the bonus plan is driving sales. The manager will be motivated to spend more time with his or her largest-volume reps, since those folks represent the most significant impact on their own earnings in a volume- or share-based plan.
When the top priority is to lead and coach the team, we most often see first-line managers paid based on "average" rep performance. In these cases, every rep has equal importance regardless of his or her sales volume, so managers will balance their time working with his or her reports. A manager’s motivation can also be further directed toward lower performers if there is a threshold for rep payouts. For example, if a sales rep does not earn any bonus until achieving 75% of goal, then a manager will be highly motivated to get all of his or her reps above 75%, since a $0 rep will heavily impact his or her own bonus.
Both approaches for manager sales compensation are equally common, but in my experience, consistency with prior years has most often determined the priority. I would like to see more companies instead have the conversation with senior management on which plan type fits best with their culture and how they define the manager role.
What do you think? Has one of the manager bonus methods proved more successful in your experience? Or are you using a combination?