Are you missing out on bonuses?

I regularly receive questions pertaining to bonus splits for SEs. Many want to know what their variable comp should be given their seniority. Others have brought in a big deal and didn’t feel they got a fair shake. In this article we’ll explore some common scenarios and what you’re likely to find as you move up the food chain.

The first thing to keep in mind is that the entire role of the SE can vary from company to company quite dramatically. Many companies place SEs just above support and the comp reflects that; others equate them very closely to Sales and you’ll find variable comp (commission / bonus) to be up to 50%.

There are, however, trends that you will see as the size of company and length of tenor for the SE organization becomes larger. The guidelines I present below are based on a composite of companies with SE organizations above 50 SEs and revenue generally over $100 million.

Variable Comp

Commission in the SE ranks is generally stepped to increase as a percentage of OTE (on-target earnings) as seniority increases. The thought behind this is that as an SE matures in grade, they are expected to pick up an increasing portion of the overall sale, including driving bigger quotas.

Grade Variable Comp
SE 10-20%
Senior 15-25%
Principal 20-30%
Sr. Principal 25-40%

In any sized organization you will likely find:

  • Some variable component (at least 10%)
  • A cap around 30%
  • An increase as grade increases
Sales Management will want SEs to have some “hunger” built into their comp plans to ensure they stay aligned to sales. They will often push this number on the high side, especially if the company is small and would like to tie higher payouts to higher income because of budget constraints.
SE Managers and seasoned Sales Managers will recognize they can easily push that number too high. The result is that you end up with 2 “reps” on the account whose strategy may not align. You want SEs to be hungry, but not so much that they become too conflicted with the “trusted advisor” aspect of the position.
In many organizations, SEs are seen as the stabilizing element of the account team with SEs remaining tied to an account for 3-5 years versus a rep with a shorter lifespan of 1-2 years. Bonusing SEs too highly creates a conflict of short term vs long term interest. It’s good to have a check and balance on the account team.

Payouts and Accelerators

Accelerators are typically built into any sales plan and determine what happens for your commission on anything exceeding your quota. Companies accelerate bonuses because 1) they want a strong incentive to over-achieve, and 2) it becomes easier to pay out higher rates with revenue that was not “committed” to owners (shareholders).
There is much less standardization here on the Sales side and variation between industries. Typically the SE plan will mirror the rep comp plan in terms, but generally not in percentage payout. Payouts for reps can average out to 5-20%+ of deal size, while the SE plan is more likely 1-10% and typically below 5%.
Most will have overall caps to ensure their personnel aren’t able to retire off a single large deal.

Negotiating Terms

The smaller and newer the Sales organization, the more leeway you have in negotiating terms. Once you get to 10+ SEs it becomes extremely hard for Sales Management to justify changing the terms just for you and risking potential alienation of prior hires that didn’t get as good a deal. Salary and title remain the big lever.
If you’re one of the first few though, you can have a lot of say in your plan. My advice, especially these days, is to forego the focus on equity (stock options). They can be important, but most companies are very reticent to hand out large option packages because of the accounting regulations now in place.
You’re far better off fighting for a reasonable variable portion and then focusing on acceleration potential. Small companies are much happier and feel safer negotiating terms that only come into being once they’ve gotten what they wanted (your quota). Since I know you did your homework before interviewing the company, you already have a good sense of their market potential, so swing for the fences.