I recently read and agreed with several comments on LinkedIn that you should not cap a sales rep’s variable earnings. As companies grow and Finance gains power, this tends to happen. That is one of the key reasons that your stars leave.
That said, there is one type of cap that makes sense.
That is a maximum on the variable compensation paid for any single deal. I call this the “Save the VP of Sales’ Job” clause. I would make that maximum large, on the order of the rep’s annual variable target income. If you do not have this in the sales comp plan and a rep blows it out such that commission for a single order is significantly greater than their annual target variable, ugly things happen. It is likely that several department resources were involved in the sales process of very large deals. Soon, the CEO and CFO are questioning why this happened. Department VPs express their staff’s unhappiness. The pressure builds and the Sales VP gets fired.
Contact Growth Process Group for answers to your Sales Compensation questions.
