Phone Works VP Sales Compensation Report – Q4 2006

Every year in the fourth quarter, Phone Works conducts a compensation survey of “Chief Sales Officers” of business-to-business technology companies. The majority of these businesses are based in the San Francisco Bay Area. Survey respondents include employees of both private and public companies, but all companies have annual revenues of less than $250M. The average total number of employees is 158 and ranges from 20 to 800.

Total Compensation Varies By Seniority

Table 1, below, displays the average base salary, commission, total package and average sales price of company products for sales executives in both public and privately-held companies.

	BASE SALARY	COMMISSION	TOTAL PACKAGE	AVERAGE SALES PRICE
Sr. or EVP	Avg: $187K Range: $140–300K	Avg: $170K Range: $120–250K	Avg: $363K Range: $274–550K	Avg: $305K Range: $30K–1M
VP	Avg: $171K Range: $84–264K	Avg: $133K Range: $0–215K	Avg: $312K Range: $200–450K	Avg: $161K Range: $5K–1M

Table 1. Average compensation and compensation ranges.

For respondents in public companies only, the averages for base salary and total package at the VP-level are higher. Those averages are $231K for base salary and $386K for total compensation target.

Bonuses and Stock Compensation are Important Motivators

In addition to commission, some executives receive additional bonuses of either cash or stock for:

• performing over quota
• achieving key corporate objectives
• meeting bookings, expense, or profitability goals
• impacting partner performance
• penetrating target verticals or key accounts
• retention, tenure, company value

Stock and stock option grants remain a strong component of executive compensation. The industry average stock grants ranged from less than one percent to four percent of the company. Table 2, below, shows the average stock and stock option compensation for all levels of sales executives in both public and privately held companies.

Table 2. Stock and stock option compensation.

The number of options ranged from 10,000 to 3,800,000 with an average of 819,250. In public companies, the range was 10,000 to 750,000 with an average of 334,000. Vesting periods are typically over four years; 13% of respondents reported a three-year vesting period and only 3% a five-year period. Ninety percent of the companies we surveyed provide full or partial vesting upon change of control of the company.

Sales Quotas and Number of Direct Reports

Table 3, below, shows the average annual quota, number of direct reports and size of sales staff.

	ANNUAL QUOTA	NUMBER OF DIRECT REPORTS	SIZE OF SALES STAFF
Sr. or EVP	Avg: $31M Range: $2-122M	Avg: 14 Range: 5 - 25	Avg: 26 Range: 4 - 75
VP	Avg: $30M Range: $900K-230M	Avg: 10 Range: 4 - 45	Avg: 26 Range: 4 - 78

Table 3. Sales quotas and organizations.

Seventy-nine percent of the sales executives surveyed have worldwide responsibility while 18% have North American territories only and 3% sell into the United States or part of the U.S. only.

What About Hosted Application Selling?

With the prevalence of selling Software as a Service, we added survey questions specific to this sales model.

Here are the data for average base salary, commission, total package and average sales price of company products for sales executives in companies that sell Software as a Service:

BASE SALARY	COMMISSION	TOTAL PACKAGE	AVERAGE SALES PRICE
Avg: $176K Range: $80-250K	Avg: $123K Range: $0-200K	Avg: $318K Range: $200-450K	Avg: $253K Range: $5K-1M

Table 4. Average compensation and compensation ranges for companies selling SaaS.

Quotas and average deal size have a different implication when subscriptions are involved. Of the 43% of surveyed companies that Sell software as a Service, quotas are typically based on annual or multi-year subscriptions.

Table 5. Quotas in Companies that Sell SaaS Based on

Tenure of the Vice President of Sales

There is a fair amount of turn-over for this position. Thirty-seven percent of executives have been with their company for less than a year, and only 13% longer than 4 years.

Table 6. How long have you been VP of Sales at this company?

Multiple Sales Channels Help Make Quota

Reseller and additional channels are present in the majority of companies, in addition to a primary Field Sales channel.

Table 7. Sales channels.

Sixty-eight percent of companies have a Sales Development group that generates and qualifies sales leads to support these channels.

Functional Responsibilities

In addition to overseeing the generation of revenue, the Vice President of Sales is often responsible for a host of additional functional areas. The additional responsibilities include Inside Sales/Service Sales, Marketing/Field Marketing, and Sales Consulting.

Here’s how it breaks down:

Table 8. Functional responsibilities.

Compensation Plan Challenges

When asked, “What is the top challenge of your compensation plan?”, respondents gave some very similar answers. Here is a summary of the most common issues:

• Plans are not aligned to realistic goals.
• Compensation is impacted by non-sales issues.
• Plans do not drive and adequately reward top performance.
• Early stage (private) company resources and funds are constrained.

About the Surveyed Companies

The following graphics show an overall picture of the companies that responded to our survey.

Table 9. Categories of products sold.

The “Other” category includes: semiconductors, content search, online advertisting, and B2C.

Table 10. Headquarters location.

Table 11. Stage of company.

Help Us Improve Future Surveys

We’d like to hear your suggestions or questions on the information reported here. Are there survey questions you would like to see included? Clarifications on data reported? Other ideas on how to make the survey more useful? Send an email to info@phoneworks.com and let us know what you think.

This newsletter is provided as a complimentary service from Phone Works, LLC, the San Francisco Bay Area’s leading sales consulting firm. Phone Works helps technology firms increase revenue, shorten sales cycles and implement successful, repeatable sales models by building better inside sales teams.

You can reach Phone Works at 510.749.9073.