October 7, 2019
Channel Futures and the MSP 501 initiative recently launched a new program, the 501er Community. This community is designed to engage MSPs in a dialogue about best practices stemming from the MSP 501 data, as well as provide networking events and educational opportunities.
As part of this program, we have engaged more than a dozen industry leaders as MSPmentors. These influencers include analysts, channel chiefs and renowned consultants. In this series, we present questions posed in the 501er Community discussion group and ask our Mentors to provide detailed answers.
Cyxtera’s Tina Gravel
Today, in our inaugural Ask the MSPmentor Q&A, we get thought leadership from Tina Gravel, global senior VP of channels at IT infrastructure provider Cyxtera.
501er Community: What are some best practices around employee compensation strategies and models, especially for sales and technical personnel?
Tina Gravel: Compensation models have largely gone unchanged in the last 10 years and personally, I am glad.
For a very long time now, compensation around sales and sales engineers has not changed radically. Let me start with the internal models first: As a vendor, I need to be competitive in order to hire the right folks for the job. To do this, Cyxtera HR did research (and continually does this) to understand what the range of payment for salary and commission/bonus the “A” players would require. We know we won’t have 100% “A” players, so we have ranges to allow for varying experience levels and indexing related to location for each position, along with variable compensation, etc. Most large companies do this to some extent or another.
Smaller firms often rely on what the larger firms are doing as their guidepost, at times offering lower salaries because that is all they can afford. However, many startups will endeavor to set up compensation that allows them to pay more as a percentage of sales for three reasons:
They know the salaries are not competitive, and they will have to find another way to keep the individual in the seat.
Smaller firms that cannot risk paying a big salary to a performer for a year (who may not perform) can pay someone more when the sale closes and the money is in hand.
Most firms acknowledge that a small firm’s lack of brand may make it harder to sell their products and services, and so they must pay accordingly.
Most vendor, large company sales positions are either 50/50 salary and commission or some variation of the percentage depending on the product being sold, the experience level of the salesperson, whether the salesperson is a “farmer,” “hunter” or manager, and so forth.
Sales engineers are handled differently. Normally, sales engineers do not want to take on the same level of variable compensation that salespeople have an appetite for. They often want to earn a bonus for their efforts but do not want to have their salaries at risk. They also often command a higher salary than a salesperson because of market conditions related to the technical…
…knowledge required for the job. These folks are special animals (I say that with all the love in my heart), and the good ones are worth their weight in platinum. Why? Because the very best sales engineers are very savvy regarding sales and often possess terrific “soft skills.”
The sales engineer compensation model for large firms can be a salary plus a variable of 25% to 50% (generally). I have also seen smaller companies offer variations on this for the same reasons I illustrated above, but, as a rule, they will not attract the best SEs when doing that because the SE knows he or she will do better elsewhere.
There are business development representatives and inside sales representatives that also have variations on the model. Some are paid for tactical actions like appointment setting in addition to percentage of revenue or, in the case of rainmakers whose work is front loaded before the first sale is made, may require an MBO type of arrangement or higher salary. At Cyxtera our MBOs directly tie to the overall company KPIs. (Editor’s Note: If I am taking you to Acronym Madness here, check the definitions at the end of this article.) There are also the folks that are measured on the base of the existing territory with bonus tied to percentage of churn or increase to the base. The people that are normally paid that way are “farmers” or those responsible for customer success. I have seen the bonus as a percentage of salary vary greatly depending on role, experience and company situation.
501er: What about vendor compensation for the indirect channel? Why do incentives vary so much between providers?
TG: Traditionally, the channel that I have been exposed to (former telco agents, real estate brokers, VARs) encompasses individuals that are paid in several different ways:
Real estate brokers with contracts and state regulations that require them to be paid in a certain way are one example, normally a percentage of monthly fees for contracted period, paid up front.
The former telco agents already used to a residual commission are paid as a percentage of monthly revenue for the time of the agreement (and in many cases renewals)
At the VAR, the salesperson is compensated by how much gross margin they can keep. One variation that occurred when VARs were dragging their big box sellers into services involved providing upfront payment based on the MRR or a multiple of the MRR. That seemed to work in the situations I observed, but I can also testify to where it did not work with big box sellers that were not interested in changing.
There are also SPIFFs (Special Incentive Funding Formula). No one really knows what this means; there have been many variations on the definition of SPIFF. My definition of what the letters signify is only one of the various definitions, but it works for me. Special incentives in big companies are usually done when companies want to incentivize salespeople for a short time and prefer not…
…to work that into a long-term plan (for example, a promotional offer such as dollars, trips, gifts, etc.). Typically, the larger firm does not want to make the offer permanent for all kinds of reasons.
I have seen some mega SPIFF programs lately in the UCaaS space. The top companies I have heard are offering five to six times the contracted monthly recurring revenue as a “thank you” bonus. You can see why they would put that in a SPIFF and not want that to be normal compensation for sellers over time. At some point they will either find that they cannot afford to keep doing it or do not need to continue to do as they have market share, as two examples.
For the indirect channel, the most creative things I have seen are with regard to SPIFF offers. The typical method of payment for each type of partner has not changed in a long time. The percentage can vary by company, and those firms may decide to take on another payment method (for example, brokers that provide data services may want to be paid like agents), but largely this has not changed in the 10 years since I was last running a channel. Frankly, as a channel chief, I do not want it to radically change. Why? Because my bosses and peer Cyxtera executives understand the way indirect compensation works today and what we need to be competitive. I do not have to “sell” internally a different payment scheme to the finance department or CEO. That work was done, they get it and they do not question me because it is standard. SPIFF payments, by nature of how they work and that they normally are paid via existing marketing budget or at the discretion of the selling executives (assume here indirect as well as direct SPIFF) may vary.
It should go without saying that whatever sales, marketing or other expense is money going out which must be balanced with margin expectation and other sales costs against what is coming in.
MBO (From Investopedia) = Management by objectives (MBO) is a strategic management model that aims to improve the performance of an organization by clearly defining objectives that are agreed to by both management and employees. Apr 30, 2019
KPI= Key Performance Indicators. A performance indicator or key performance indicator is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. Wikipedia
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