Phone Works VP Sales Compensation Report Q4 2008

A question on everyone’s mind these days is, “How is the slow economy affecting sales compensation and quotas?”. We set out to find out. As we do every year in the fourth quarter, Phone Works conducted 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. The size of the participating organizations varies greatly, with annual revenues ranging from the $1-10M range to over $100M. The average total number of employees this year was 924 and ranged from 18 - 17,000 and 17% of the respondents were from public companies.

Total Compensation Varies By Seniority

Table 1, below, displays the average base salary, commission, total package and average quota in both public and privately-held companies. The 2008 total compensation package figures showed a slight decline for All Respondents and SVPs/EVPs but an increase for VPs since 2007. This is the first year Phone Works is tracking Field Sales Representatives’ Compensation.

Table 1. Average compensation and compensation ranges.

Hosted Application Selling

With the prevalence of selling Software-as-a-Service, we wanted to see how compensation varies for sales managers and representatives selling hosted applications. Below is the data for average base salary, commission, total package and average quota in companies that sell Software-as-a-Service (65% of all respondents):

Table 2. Average compensation and compensation ranges for companies selling SaaS.

Bonuses and Stock Compensation are Important Motivators

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

• meeting sales goals
• meeting profit targets
• achieving key corporate objectives
• meeting partner program goals
• equity in the company

The average bonus is $58K, ranging widely from $10K to $450K.Stock and stock option grants remain a strong component of executive compensation. The industry average stock grants ranged from less than one percent to three percent of the company. Table 3, below, shows the average stock and stock option compensation for sales executives in both public and privately held companies.

Table 3. Stock and stock option compensation.

The number of options ranged from 0 to 4,000,000 with an average of 582,877. In public companies, the average was 285,833 vs. 684,390 in pre-IPO companies. As one would expect, the public companies showed a lower percentage of ownership (1.4%) compared to private companies (2.3%). Vesting periods are typically over four years (79% of respondents). 79 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 4, below, shows the average annual quota, size of sales staff and average deal size. The annual quota figures have declined slightly since 2007.

By Title:

Table 4. Sales quotas and organizations.

82% of the sales executives surveyed have worldwide responsibility.

By Company Type:

Table 5: Sales Quotas and organizations by company type

Tenure of the Vice President of Sales

There is a fair amount of turn-over for this position. Thirty-two percent of executives have been with their company for less than a year, and 16% have been there longer than 4 years.

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

Multiple Sales Channels Help Make Quota

Field Sales channels are the most common, however there are many different channels used including Resellers, Telesales and VARs.

The biggest growth will occur in OEM Channels. 23% of respondents plan to add this channel in the near future.

Table 7. Sales 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 are most likely to include Telesales, Renewals, System Engineers, and Sales Development.

Here’s how it breaks down:

Table 8. Functional responsibilities.

Compensation Plan Challenges

When asked, “What is the top challenge of your compensation plan?” there were more challenges reported for private companies than public companies. The most common issues reported for private companies were:

• Compensation is affected by non-sales issues (e.g., client on boarding process, product issues)
• Plans do not provide rewards for exceeding targets
• Quota and growth levels are not achievable
• There is a lack of history to help establish targets/monitor performance, especially for start-ups
• External economic factors make it difficult to achieve quota
• Company is focused on incremental gain vs. retention of current income
• Plans that allow you to fall behind early in the year with no chance to catch up
• Plans that do not pay frequently enough

In Public companies, some of the issues reported were:

• Establishing effective targets
• Basing compensation on activity that is not controlled by Sales (i.e. delivery of services which is owned by Sales)
• Setting goals without having enough historical perspective in new market situations
• Plans that are too complicated and sales representatives can figure out how much money they just made on a deal they closed
• Upside on plans difficult to achieve on large quota numbers

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.

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 survey is provided as a complimentary service from Phone Works, LLC, the San Francisco Bay Area’s leading sales strategy and implementation consulting firm. Phone Works helps technology and B2B firms selling complex products increase revenue, shorten sales cycles and implement successful, repeatable sales models. We are known for our special expertise in Sales 2.0, inside, hybrid (inside + field), and Software-as-a-Service sales teams.

You can reach Phone Works at 510.749.9073.