The Strategic Account Manager – How do you Compensate This Critical Role?
The role of a salesperson is very clear: sell the company’s products or services to new and existing customers. Each salesperson is assigned a territory, a quota, and they “go forth and sell”, right? Wrong. Today’s organizations are more complex; they sell through multiple channels, have complicated coverage models, and network of sales roles to sell their products, services, and solutions. The Strategic Account Manager is included in this group and is amongst the most difficult roles to compensate in sales organizations.
What is a Strategic Account Manager?
Strategic Account Managers are assigned to existing accounts – the largest company accounts. Sometimes called Key Account or Corporate Account Managers, Strategic Account Managers typically have one – maybe two – accounts, each with unique situations and needs. These large organizations require multiple resources, such as pre-sales and customer service, to meet their needs. Under such circumstances, the Strategic Account Manager becomes the “quarterback”1 to manage all the internal support.
Sample Compensation Plan
Do account managers get commission?
Account managers should not be commissioned for maintaining the current order volume. However, it is common for account managers to receive commission on:
- Account growth (incremental volume)
- New product introduction into the account
- Delivering on upsell or cross-sell opportunities
Less commonly, account managers can receive commissions paid on changing the mix on the same volume of orders. For example, if the account manager increases the volume of higher margin products, even while lowering the volume of lower margin products, they may receive a commission if the total volume remains equal.
Strategic Account Manager Compensation Structure
So, how do you compensate the strategic account manager? Here are the recommended steps:
- Define the Sales Compensation Philosophy
- Establish the Total Target Cash Compensation
- Define the Pay Mix
- Revisit the Incentive Plan Design
As an example, we completed a sales compensation plan audit for a telecommunications company last year. As a large, complex organization, they were approaching the Penetration Phase on the business maturity spectrum.
As a refresher:
- Close the Sale
- New or Start-Up Mode
- Influence is High
- Expand Customer Base
- Emerging Profitability
- Maintain Existing Customers
- Influence is Moderate
- Shift from Revenue to Profit
- Pricing Changes
- Influence is Low
- Expand Markets
- Fully Matured
- Customer Maintenance
- Influence is Very Low
For each of their accounts, they had a Strategic Account Manager and a number of other resources assigned, such as Solution Architects and Sales Engineers. Their business strategy and objectives were clearly defined; however, they faced a number of challenges, including their ability to cover the market, resourcing, and “juggling” multiple products. Along with these business challenges came an even bigger test: how to compensate their Strategic Account Managers (sales performance management planning).
The organization broke my top rule to keep it simple. The account manager compensation plan included various commission rates for profit on new business, delivery, managed and professional services, commission for renewals, and bonuses for a plethora of other activities. On top of the complex plan, each Strategic Account Manager was assigned a quota. To make matters worse, the organization had no defined sales compensation philosophy, no defined Target Total Cash Compensation (TTCC), and varying pay mixes for the role.
Define the Sales Compensation Philosophy
OpenSymmetry’s Strategy Solutions team first suggested the company define their Sales Compensation Philosophy, which helps align the organization’s business, talent, and sales strategies with decisions made in the compensation design process.
Eight principles should be considered when creating a Sales Compensation Philosophy2:
- Competitive Position
- Cost of Labor vs. Cost of Sale
- Non-Sales Alignment
- Eligibility Inclusiveness
- Rewards Prominence
- Risk/Reward Trade-Off
- Individual Differentiation
- Approach to Governance
(Source: See Footnote 2)
The philosophy can be as specific or generic as you want it to be. Some organizations use specific numbers, such as targets or percentiles:
“Company A pays its employees at the 50th percentile of the regional wage market.”
Some choose to spell out what’s included in the total compensation package:
“Company B’s total rewards provide our employees comprehensive and competitive programs. At Company B, total rewards include base pay, variable pay, health and welfare benefits, retirement benefits, PTO, education, training and other rewards such as career and job development.”
Some companies are non-specific and instead focus on the principles that guide how the organization will pay its employees:
“Company C provides rewards designed to motivate employees to achieve individual and company goals, with the opportunity to earn more for top performance.”
Establish the Total Target Cash Compensation
Next, we suggested establishing a Target Total Cash Compensation for the role. Total Target Cash Compensation includes both the base salary and sales compensation components and excludes benefits, contests/SPIFs, and other recognition occurrences. Utilizing survey data and considering internal equity among all sales jobs, management determines a TTCC for the role. Some companies take a more assertive pay position compared to market; others prefer to be more conservative. In any case, management should review and manage TTCC on an annual basis.
Define the Pay Mix
We also took a look at pay mix, which splits TTCC into two components: base salary and target incentive amount. Pay mix is expressed as a percentage split, with the first number representing the base salary and second number representing target incentive amount. The two percentage amounts added together always equal 100 percent. For example, a 90/10 pay mix reflects a base salary equal to 90% of TTCC and a target incentive amount equal to 10% of TTCC. As I stated earlier, the company had varying pay mixes – 30/70, 50/50 – for the same role! Pay mix varies by job content and as a general rule, when the influence of the salesperson increases, the base salary should be decreased and the target incentive, increased. Strategic Account Managers have “low” influence – they handle the largest company accounts and manage the resources that help meet customer needs; therefore, the pay mix should be closer to 80/20 or 75/25.
Revisit the Incentive Plan Design
Lastly, we provided some high-level recommendations around incentive compensation plan design, including:
- Keep it Simple – no more than 3 plan metrics/components
- No Formal Quota – each major account has unique account circumstances
- Plan Components – revenue, growth, churn, sales initiatives (i.e., increase utilization, penetration, cross-sell), and account sales planning/outcomes
Most sales roles have easily-assigned performance metrics and straightforward sales compensation plans. However, the Strategic Account Manager – and how to effectively compensate this critical role – has stumped compensation practitioners for decades. Whether your organization is restructuring its salesforce by adding a Strategic Accounts team or you’re moving towards another phase on the business maturity spectrum, you may want to evaluate your sales incentive compensation plan design.
Let us know some of the biggest challenges your organizations face as it relates to evaluating account manager compensation plan design in the comment section below.
- David J. Cichelli. Compensating the Sales Force, Second Edition. Copyright 2010.
- Mike Gutmacher and Paul Reiman. Principles of a Sales Compensation Philosophy. 2010.