Hook & Bait

What’s the best compensation structure for a VP/Head of Sales

Stefano Bellasio asks

Hey Martin! I am hiring our first Head of Sales and even if there are a lot of articles suggesting the best compensation structure, I still have a few doubts on what’s the best approach. Besides the OTE, I would try to understand better what are the goals involved for him and how to structure that!

Marten Mickos

The best compensation structure for a head of sales is one with a low fixed component and a very high variable part. It’s useful if the regular salary is painfully low and the rewards for success are exhilaratingly high. When things go well, the VP Sales should be the best-paid person in the company.

Ideally, VP Sales has a lower fixed salary than all other executives and VPs. But he/she should have the opportunity to earn 2-4 times that amount upon reaching ambitious and achievable goals. It’s difficult to know how to set sales goals. They need to be highly ambitious, but they must also be achievable. In a startup, you typically don’t know what’s possible and what isn’t, so you make a guess and then it often turns out that you set the goal too high or too low.

Other than a numerical sales goal, I recommend setting other goals as well. Here are some suggestions:

  • hiring and building a strong team
  • working with the CEO and the rest of the management team to build a viable growth strategy
  • shortening the sales cycle
  • expanding into some specific new market (a new vertical or a new territory)

Traditionally, sales leaders were hired for their interpersonal skills – their “ability to sell”. Today it may be more important to look for analytical skill (sales is data driven these days), team building skill, and familiarity with modern-day sales tools and techniques. Sales leaders of today have to understand both inside sales and field sales, both relationship building and data-driven transactional business.

Hope this is useful!

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