New research from Palette sheds light on sales compensation benchmarks and best practices in 2023. Commissions are one of the largest expenses for companies with sales teams, and the research uncovers areas of opportunity impacting revenue growth, profitability, data accuracy, retention, and more.
According to new research from Palette, “The State of Sales Compensation 2023,” the majority of companies have suboptimal sales compensation practices, with 41% facing retention problems among sales reps. While sales compensation is the single most important factor in motivating sales reps, 25% report that reps don’t understand their commission plans. Other highlights from the study include:
- 63% of companies lack adequate measurement on compensation plan performance, despite clear links between comp plan structure and revenue growth
- Only 29% of companies have fully automated commissions, despite efforts from finance and sales departments to improve productivity by reducing manual work
- 56% of companies have error-prone commission calculations, impacting how sales teams are paid and requiring extra work to trace and explain errors and adjust payouts
“Companies today are under pressure to grow revenue while cutting costs; these results demonstrate how sales compensation can be an important lever to achieve these goals.” – Jean-Edern Lorillon, CEO, Palette
With finance and sales teams under pressure to grow revenue while cutting costs, Palette wanted to better understand opportunities to improve performance by optimizing sales commissions. In Q1 and Q2 of 2023, Palette conducted a survey targeted towards sales leaders to assess the state of their sales commission structures, administration, and performance. A total of N=130 respondents completed the survey, representing a cross-section of industries, company sizes, and seniority levels, with most respondents located in the United States.
The study found that the majority of companies surveyed are laggards in sales compensation, with suboptimal plans and outdated administration practices. These companies are leaving meaningful performance improvements on the table for sales teams, and for finance and sales ops departments which administer the plans. About one third of companies are leaders in sales compensation with clear and transparent plans, smooth plan administration, and infrequent errors.
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Regarding overall competitiveness with sales compensation, only 16% of companies felt they exceeded industry standards for sales compensation, with 41% agreeing they faced sales team retention issues specifically due to suboptimal compensation plan structures. Similarly, only 23% of companies provided sales reps with timely reporting on their earnings and their potential payouts for each period. This lack of visibility on commission plan performance was consistent across sales reps and sales and finance leaders, as 63% of companies had no way to measure the performance impact of changes to compensation plans in a timely manner.
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While CFOs and finance teams continue to invest in digital transformation, automation, and AI, 71% of companies surveyed report having to update spreadsheets, check data, manage version control, and conduct other manual work related to commissions. These companies have the opportunity to reduce time spent administering sales commissions by 76%, saving days or weeks of work each month, depending on the complexity of their plans.
