A VP of Sales is a vital part of your management team and is integral to the success of your company. They are responsible for hiring, training, and developing members of your talent pool and making sure they have the skills and team to help your organization achieve its key performance indicators (KPIs).
With this in mind, it’s essential to hire the right person for the position, and for that, you need to offer the right sales compensation package.
In this article, we explore some options to offer a prospective VP of Sales that will fit their expectations as well as the needs of your business.
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As with any position of such importance, there is no “one size fits all” package for compensating your VP of Sales.
Rather, consider the following factors when building your package:
- Track record — Have they a proven record of achieving targets and retaining the best sales team?
- Years of experience — Will this be the person’s first time as a VP, or will it be their 8th?
- Size of employer — Larger employers have larger sales teams, and typically compensate to reflect that.
- Years of tenure at an employer — A new employee often has lower compensation expectations.
- Employer’s industry — Niche industries often need to pay more for experienced VPs.
- Industry knowledge and connections — Those who bring a larger network and industry knowledge to your organization may deserve a higher package than someone who does not.
- Method of compensation — Salary, bonuses or stock options? Different combinations suit different companies and candidates, as we shall explore later.
- Location — If this person lives in an area with high living costs, they’ll expect their compensation to match.
VP of Sales compensation structure
As we indicated earlier, there is no one-size-fits-all structure for compensating a VP of Sales, but some basic guidelines apply.
Usually, a package includes a base salary and some sort of bonus or commission-based element, depending on the stage of the VP’s career and the industry they work in.
For SaaS (Software as a Service) organizations, the salary and bonus figures depend on the organization’s size, how many sales managers and reps they employ and the geographical area they work in.
3 examples of a VP of Sales compensation package
Choosing the best compensation package for your VP is closely related to the size of your company, its needs, and your growth goals. This may change over time and should also relate to the expectations of the type of candidate you wish to attract.
To help, we sourced three VP of Sales compensation package examples based on commonly adopted compensation structures.
1. A stretch plan for startups: 50/50:25+
If you’re running a start-up, growth is vital, so you need a package that incentivizes growth. However, you don’t want to offer too much and jeopardize your organization’s profitability. So a good package to offer at this stage can be made up as follows:
- 50% base
- 50% commission
- 25% of all revenue above the total revenue target goes to the leader (accelerator)
To make this work, you need to set your goals early on and ensure they’re realistic. If you pitch your targets too low, you may needlessly lose a chunk of revenue — although your VP will be happy! Too high, and a good VP of Sales will recognize this and become demotivated.
2. Equity package: 70/30: equity
A package with a solid salary base can attract experienced VPs who want a predictable income. And, of course, a commission element keeps them motivated. A good split for that will go like this:
- 70% base
- 30% commission
- Stock or cash bonuses for milestones above target
The stock or cash bonuses also motivate your VP to bring on team members who can contribute strongly to your revenue. This gives them a good connection to your organization and keeps them invested.
3. Year-over-year comparison
This highly-motivating package compares revenue, net profit results, and gross profit. You then calculate bonus payouts to align with the gross profit for each category over the previous year. If your business doesn’t grow, there’s no bonus for your VP of Sales. You can scale this model to suit the needs of your organization and also inspire your VP to build a team well-suited to helping the company grow.
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Best practices for building a VP of sales compensation package
When building your compensation package for a VP of Sales, start with a pre-determined and clearly laid-out quota and annual plan. This may involve:
- Setting an annual budget for sales hiring and expenses.
- Modeling the numbers to ensure the gross profit your VP brings in will outweigh the cost of their role.
Of course, once you have the right VP of Sales compensation package in the first year, the journey isn’t over.
As your company grows, your VP of Sale’s role will grow with it, so it’s best to revisit that package annually to ensure it still meets the needs of both your organization and your valued VP of Sales.
Need help with comp plan design for AEs and SDRs? Our free and ungated resource, Compensation Hub, includes a library of 20 adjustable templates to find the right plan fit for your business. To learn more about QuotaPath’s automated commission tracking and incentive compensation management software, book time with our team today or sign up for a free 30-day trial.