Pay Mix 101

Pay mix refers to the portion of base salary and incentive that makes up an individual’s total salary at a job. It is also usually the most influential behavior driver for a salesperson and a major financial decision for the company. From the company’s financial standpoint – it sets a substantial part of their sales fixed and variable costs (salary and incentives) while establishing the perimeters for high payouts that reward high performance. As one of the major behavior drivers the pay mix is used to obtain the right behavior of the employee and therefore must be planned correctly or it may cause undesired, and sometimes opposite results than those desired.

As stated above, the pay mix is especially important in sales, and sales often have the most impact on the company’s bottom line.  And what impacts a salesperson’s performance the most is usually their potential earnings. A smart pay mix will be one that will sustain the salesperson performance at a high level for as long as possible.

The pay mix is derived from the job’s objective. You can have different pay mixes for different roles that will earn the salesperson the same total salary, but with a difference between the base and incentive parts. For example, on the one hand, a salesperson responsible to bring new accounts to the company will need to be aggressive and constantly engaging, so a pay mix which favors incentives over base (like a 50/50 rate) will help achieve that goal.  On the other hand, a customer relations employee will require a pay mix that will favor security and stability and hence a higher portion of the base salary in the total earnings (like a 90/10 rate). At the end, both employees may end up earning the same amount of money, but that amount will be driven by different behavior motivators.

When dealing with personal sales compensation it’s important not to think in term of affordability but rather in terms of stability. That is because a salesperson incentive will be the one that will maximize both the employee’s earning as well as the company’s profits, when that’s the case – there is no financial reason to limit the salesperson pay because then you are actually limiting the bottom line profits.

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