Pay mix is a critical element of sales compensation design. Get it right, and you’ll unleash the full potential of your plans to attract and retain top sales talent, and to drive performance.
Whether you’re building a new compensation plan or adjusting an existing one, understanding how to determine the right pay mix is essential.
What is Pay Mix?
Pay mix is the ratio of base salary to variable pay within annual on-target earnings (OTE).
For example, a sales compensation plan with a 60/40 pay mix means 60% of OTE is base salary, while 40% comes from variable pay (commissions or bonuses).
For the purposes of designing pay mix, OTE is based on the midpoint of the salary range. OTE represents what a salesperson would earn annually if they achieved 100% of their sales targets. The actual amount earned will be higher or lower depending on their actual performance.
Key Factors That Influence Pay Mix
Pay mix must be consistent with the risk/reward profile of a sales role. Three primary factors drive how you should design pay mix:
- Sales Cycle Duration
The time it takes to move from initial contact to a signed deal directly shapes the right pay mix.
• Short cycles (a few days to several weeks): Sales reps focused on closing a high volume of smaller, transactional deals are best rewarded by incentive-heavy plans, with up to 50% of pay tied to variable compensation.
• Long cycles (several months or more): Sales roles dealing with complex, high-value deals that require cross-functional collaboration and the development of deep customer relationships require a higher proportion of base salary. This provides stability during the long wait for commissions. - Role Definition
The responsibilities assigned to a sales role, both before and after the sale, play a key role in determining the right pay mix.
• New business acquisition (Pre-sales): Roles focused exclusively on winning new customers perform best with higher variable pay ratios, since incentives directly reward their ability to pursue and secure new opportunities.
• Account management and renewals (Post-sales): These roles focus on post-sale responsibilities such as onboarding, relationship management and contract renewals. Since results depend on long-term trust and service, a larger share of base salary provides stability and aligns with the nature of the work. - Company Strategy
An organization’s overall business objectives play a critical role in shaping the balance between base salary and variable pay.
• Growth-focused companies: These organizations prioritize rapid expansion and gaining market share. Their pay mix often includes a larger proportion of incentives to attract salespeople with a higher risk tolerance, and to encourage the aggressive pursuit of new business.
• Mature or retention-focused companies: These organizations place greater emphasis on stability, service, and long-term profitability. Their pay structures usually lean more heavily toward base salary, reinforcing the importance of relationship management.
Putting Pay Mix Into Practice
To see how sales cycle duration, role definition, and company strategy work together, it helps to look at examples. The table below illustrates four different selling environments and how the pay mix for a sales role might be structured in each case.
Pay Mix by Selling Environment
| Selling Environment | Sales Cycle Duration (Ave) | Role Definition | Company Strategy | Pay Mix Ratio (Base Salary / Variable Pay) |
|---|---|---|---|---|
| #1 | Less than 1 Month | Pre-Sales Only | Aggressive Growth | 50/50 |
| #2 | 6 Months | Pre-Sales Only | Aggressive Growth | 60/40 |
| #3 | Less than 1 Month | Pre- and Post-Sales | Mature Market | 70/30 |
| #4 | 6 Months | Pre- and Post-Sales | Mature Market | 80/20 |
These examples are meant to serve as guidance, showing how pay mix can vary depending on the selling environment. The right approach depends on an assessment of what best fits your company, its priorities and culture.
Finding the Upper Limit of Variable Pay
The recommended maximum ratio for variable pay is 50%. This balance gives equal weight to base salary and sales performance, creating a fair and sustainable structure.
Pushing beyond a 50/50 mix by reducing base salary within OTE can make it harder to attract and retain top talent. In competitive markets, skilled sales professionals are more likely to choose companies that offer stronger base salaries while maintaining similar earning potential.
A variable pay ratio above 50% may also increase the risk of unethical sales practices. While this does not mean salespeople suddenly engage in misconduct if variable compensation is above 50%, it does acknowledge that a tipping point exists. When too much income depends on closing a deal, the associated pressure can lead to misrepresentation and other risky behaviours.
Establishing the Minimum for Variable Pay
The lowest practical ratio for variable pay aligns with the annual bonus typically offered to non-sales employees. However, because sales roles are expected to include a more compelling performance-based component, their variable pay ratio should be set at a materially higher level.
Pay Mix for Sales Management Roles
Management positions typically carry a lower variable pay ratio than the sales roles they oversee. This reflects the broader scope of their responsibilities and their reduced direct involvement in closing deals.
Since front-line sales roles should carry the highest proportion of variable pay, it is best to define their mix first. Management roles can then be calibrated with lower ratios that align with the nature of their job.
For example, a 60/40 pay mix may be suitable for a sales manager leading a team of account executives with a 50/50 mix in pure acquisition roles. If the manager’s responsibilities also include post-sale activities such as account management and renewals, a 70/30 mix may be a better fit.
Designing the Right Pay Mix
There’s no one-size-fits-all answer. The right mix balances a deep understanding of your sales roles, business strategy, and company culture.
Think of pay mix design as both art and science. It is anchored in data, but also shaped by strategy and culture. Done right, it unleashes the full potential of your sales compensation plans to attract and retain top sales talent, and to drive performance.
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