Chief Revenue Officers get paid a lot of money. Sometimes they may even earn more than the CEO. Two frequently asked questions that CEO’s ask us are:
- “How should I compensate my new CRO?”
- “Should I include them in our executive bonus plan or should I compensate them with a more traditional sales incentive arrangement?”
It's not uncommon to see a range of answers, including some knee-jerk reactions made with little critical thought. Poor decisions happen when CEOs or COOs allow individual candidates to dictate their own pay packages. In some cases, the CEO or COO may be ill informed about the nuances of these arrangements. And other times, the candidate may be a great negotiator. Heck, they should be a great negotiator if they're going to drive a value pricing culture in their team!
Whatever the case, the implications of poor CRO plan designs can be dramatic. This is especially true for other C-Suite members with whom the CRO must collaborate.
We find the most effective CRO plan designs start by addressing the following questions:
- Where is the company in its evolution? Is it a start-up or mature? During the start-up phase, traditional commission plans are common to encourage the CRO to drive new logo sales. However, the company needs to be aware of unanticipated mega-deals. These can result in what might appear to be outsized payments in the eyes of fellow executives. Often, these mega-deals are the result of collaboration and team effort, not the CRO working independently. More mature companies will generally assign the CRO to the annual executive bonus plan along with her/his C-Suite counterparts.
- What's the expected time horizon for the CRO to demonstrate results? If it’s less than one year and the focus is on tactical execution, then a traditional commission plan makes most sense. Such a plan can help ensure laser focus on short-term metrics. A longer time horizon requires longer term thinking and strategy. Including CROs in the annual executive plan is generally more appropriate in that situation.
- What's the job focus? In start-up situations with a focus on getting deals in the door, a traditional plan is needed. CROs in these positions are often not spending time with the activities that take up the time of typical CROs. Start-up sales leaders aren't really CROs, but VP of Sales, hyper focused on closing deals. If the role is focused on the larger sales strategy, operations model, and enablement platform, an executive plan is more common and appropriate.
- What's the career development plan for the CRO? In many organizations, the CRO might take a career path that leads to greater and broader enterprise responsibilities. In others, the planned CRO path is more narrow, exclusively centered around top-line sales. The executive bonus plan provides a better vehicle for encouraging, reinforcing and rewarding broader accountabilities.
- How much collaboration is needed with other executive team members? Highly collaborative interactions with C-suite counterparts to ensure quick and cooperative decision making are important. An executive bonus plan will help strengthen the CROs messages and requirements for collaboration. If immediate revenue is the burning priority, you may need to look at alternatives. Short-term incentives with direct "line-of-sight" between sales metrics and individual rewards may best achieve that objective.
- What was the CROs previous role? Say the CRO previously held a role with broader responsibilities and was included in the executive bonus plan. In that case, they likely will be more comfortable continuing that style of arrangement. In contrast, the prior role may have focused exclusively on individual selling and operated with a traditional commission plan. Then in that situation, the CRO candidate likely will expect to continue under a similar arrangement. This is particularly true if they perceive a higher upside.
- What's the current competitive and talent environment? Exclusive of all other considerations, it may come down to the current demand for sales leader talent. There may be no other alternative but to accommodate the individual candidate's demands and preferences. Regardless, it's advisable to think beyond the current situation to possible future scenarios and how they will be addressed. Many times, an individual is hired with the expectation for a short-term tenure. After this, a different individual will be needed to take the company to the next level of growth.
Like most complicated business issues, silver bullets don’t exist for this one. Thinking through these questions provides a convincing rationale for whatever decision is reached.
If you're struggling with developing the right compensation for your CRO or any other sales roles, let us help. We can benchmark you against your peers and construct a plan that aligns and drives your strategy.
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