Compensation Benchmark Data

Phone Works VP Sales Compensation Report – Q2 2004

As companies look forward to an economic rebirth and increased purchasing by customers, the Head of Sales is expected to capitalize on this upward trend and maximize revenue. But the last several lean years have made customers increasingly cautious and conservative, making deals harder than ever to close. Our 2004 Report shows how VP of Sales compensation has been affected as initial deal size is shrinking and sales cycles are lengthening.

About the Surveyed Companies

We surveyed small- to mid-size business-to-business technology companies in northern California. Twenty percent have headquarters in San Francisco, 13 percent in the East Bay, 50 percent in South Bay or Peninsula, and 17 percent outside the immediate SF Bay Area. Ninety percent are privately held companies in various stages of funding, from seed capital to mezzanine-level financing. Less than one percent of the public companies have annual revenues greater than $250M. The total number of employees at the surveyed firms ranges from 14 to 400.

Total Compensation Varies By Seniority

Table 1, below, displays the average base salary, commission, total package and average sales price of company products for the senior sales executives we surveyed. We also show the percentage change in the same categories from our last survey, completed in late 2002.

Compensation for Senior Sales Executives
	Base Salary	Commission	Total Package	Average Sale Price
Sr. or EVP	Avg: $222k Range: $175-300k	Avg: $191k Range: $100-300k	Avg: $438k Range: $275-625k	Avg: $193k Range: $10 – 500k
Change	Up 4%	Up 18%	Up 14%	Down 31%
Director	Avg: $164k Range: $100-235k	Avg: $121k Range: $65 – 180k	Avg: $286k Range: $180-400k	Avg: $187k Range: $5 – 650k
Change	Up 4%	Down 2%	Down 6%	Down 28%

Table 1. Average compensation, compensation ranges and % change from last survey

Senior and Executive VP’s commission and total compensation package went way up since our last survey for those with the most experience, sales employees and direct reports. At the VP and Director level, commissions have decreased as well as the total target compensation, but base salaries were up four percent for all executives.

A handful of executives receive bonuses for new sales or for exceeding quarterly or annual quotas, but the majority is on a straight commission plan. In privately held companies especially, stock and stock option grants remain a strong component of executive compensation. The industry average stock awards ranged from less than one percent to three percent of the company. The number of options ranged from 20,000 to 2,000,000 with an average of 605,000. Vesting periods are typically over four years; only one respondent reported a 3-year vesting period. About half had a one-year cliff. Eighty-one percent of the companies we surveyed provide full or partial vesting upon change of control of the company.

Compensation Directly Related to Responsibilities

As was true in our last survey, quota (and compensation) increases with the size of sales staff. Table 2, below, shows the median* annual quota, number of direct reports and size of sales staff, as well as changes from our last survey. In all categories - Sales quotas, ratio of staff to management, and sales staff size - we saw decreases.

* Note: we used the median numbers for this chart because some very high quotas were skewing the data.

Responsibilities for Various Sales Positions
	Annual Quota	# of Direct Reports	Size of Sales Staff
Sr. or EVP	Med: $15M Range: $4-150M	Med: 8 Range: 3-10	Med: 45 Range: 8 - 500
VP or Director	Med: $5M Range: $2-60M	Med: 6 Range: 1 - 20	Med: 13 Range: 3 - 65
Change	Down 39%	Down 19%	Down 22%

Table 2. Sales responsibilities

Eighty percent of the sales executives surveyed have worldwide responsibility. The average tenure of these executives is 18 months, which is an increase from our last survey when the average was 12 months. Similarly, the average maximum time a VP of Sales was in his or her position has increased from three to five years. Perhaps the high turnover we were accustomed to seeing in previous years is slowing down.

Multiple Sales Channels Still Industry Standard

Which channels of distribution are being used? All but one of the companies we surveyed has field sales employees or is planning to in the near future. Channel Sales remains key, with 73 percent using or planning to use resellers, (56 percent use or plan to use VARs, and 53 percent sell or plan to sell to and through OEMs).

Inside Sales is making a big comeback. 78 percent use or plan to use telesales and 89 percent use or plan to use sales development for lead qualification*. Eighty-seven percent of companies surveyed are utilizing some form of Inside Sales.

* See our 2004 Inside Sales Compensation Survey for a definition of these terms.

Compensation Trends Since 2002

Successful companies realize that regardless of the economy, a well-paid VP of Sales is critical to achieving consistent revenue goals. This year in particular, we have seen that very senior professionals are commanding more generous compensation packages. When all title groups are averaged together, total compensation has gone up since our last survey in 2002. If we remove the year 2000, when sales managers couldn’t take orders fast enough and the aftermath in 2001, when closing deals was like pulling teeth, compensation growth from 2000 to 2004 looks nice and steady.

Table 3. Comparative Compensation from 2000-2004

This compensation survey is provided as a complimentary service by Phone Works, Inc., the San Francisco Bay Area’s leading sales consulting firm. Phone Works helps technology firms achieve rapid, sustainable revenue growth and implement successful, repeatable sales models while shortening the sales cycle. The industry’s largest technology companies and newest start-ups turn to Phone Works for lead-generation, lead-qualification, telesales and sales-productivity programs.

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You can reach Phone Works at 510.749.9073.