As a VP of Sales in the SaaS world, I bet you’ve had your share of late-night headaches over compensation plans. Your AEs (Account Executives) are likely pounding on your door—or, more realistically, your Slack DMs—demanding raises and dreaming of six-figure OTEs (On-Target Earnings). I’ve got an axe to grind about this, and it’s time to face it head-on: Many SaaS salespeople have inflated and unrealistic compensation expectations. If you want to set them—and your company—up for long-term success, let’s talk about quotas, comp plans, and how to navigate this tricky terrain.

The Golden Ratio: Quota to OTE

First, let’s lay down the golden rule of compensation: the quota-to-OTE ratio. It’s the bedrock of sustainable sales success. For every dollar in OTE, your AEs should be closing five dollars in Annual Recurring Revenue (ARR). This 5x ratio ensures that your company’s fully loaded cost of sales is around 20-25% of each new dollar in ARR. Anything less is a red flag for sustainability.

For instance, if an AE’s target total comp is $100k, they should be bringing in at least $500k in ARR. This isn’t just a formula; it’s a guiding principle that helps balance ambition with reality. Ensuring your AEs understand and embrace this ratio is crucial to aligning their goals with your company’s financial health.

The Pitfall of Overpaying

We’ve all seen it: companies throwing money at salespeople in a desperate bid to drive growth. Offering a quota-to-OTE ratio of, say, 3x, instead of the solid 5x, might seem like a quick fix to boost numbers, but it’s a dangerous game. It’s akin to buying revenue growth on a credit card with a high-interest rate—it might look good in the short term, but it’s not sustainable. Overpaying can lead to inflated expectations and eventually force you to cut back or even change the comp plan abruptly, which can damage morale and retention.

Companies that rely on these inflated comp plans are often teetering on the edge. They either end up restructuring their plans to something more reasonable or, worse, they might not last long enough to do so. As a VP of Sales, it’s your job to ensure your team understands this dynamic and to steer them away from the allure of quick, unsustainable fixes.

The Job-Hopping Dilemma

One of the biggest challenges you face is managing the expectations of AEs who frequently jump ship in search of better base salaries. This job-hopping can be a major headache, leading to high turnover rates and a perpetual state of training new hires who leave before they can make a real impact. Here’s the hard truth: In SaaS sales, it’s not the base salary that drives long-term success; it’s the variable compensation.

In SaaS sales, it’s not the base salary that drives long-term success; it’s the variable compensation.

Encourage your AEs to see the bigger picture. The allure of a higher base salary can be tempting, but it’s the variable comp, tied directly to performance, that offers real financial rewards. By focusing on achievable quotas and generous accelerators, you can help them understand that the path to higher earnings lies in their ability to hit and exceed their targets.

Crafting Effective Comp Plans

To create a winning compensation plan, you need to focus on two key elements:

1. A Good Variable Comp Plan with Attainable Quotas: Make sure your compensation plan is designed to reward success, not just activity. Your AEs should see the value in hitting and exceeding their targets, with a clear path to earning more through accelerators and bonuses. A good comp plan balances challenge with attainability, driving your AEs to push harder without setting them up for failure.
2. Strong Leadership and Development Opportunities: Compensation isn’t just about numbers on a paycheck; it’s also about growth and development. Provide your AEs with robust training programs and opportunities to learn from experienced leaders. This investment in their skills and career development not only enhances their performance but also fosters loyalty and reduces turnover.

Building a Sustainable Sales Team

As a VP of Sales, your role is to balance immediate performance with long-term sustainability. It’s about creating a team that’s not just hitting numbers today but is also set up for continued success tomorrow. This means being transparent with your AEs about how compensation plans are structured and why they’re designed the way they are.

Explain the reasoning behind the quota-to-OTE ratio, and help them see how it aligns with both their personal success and the company’s financial health. By fostering an understanding of the broader picture, you can help curb unrealistic expectations and build a more motivated, engaged sales team.

Navigating Compensation Conversations

When it comes to compensation discussions, it’s important to approach them with clarity and empathy. Here are a few tips to guide these conversations:

• Be Transparent: Share the logic behind your comp plans and the economic realities of the business. Help your AEs understand the long-term implications of their compensation and how it aligns with the company’s growth.
• Focus on Growth: Highlight the opportunities for skill development and career advancement. Show them how a strong performance today can lead to even greater opportunities down the line.
• Set Realistic Expectations: Make sure your AEs understand the market and the typical compensation structures within the industry. By grounding their expectations in reality, you can help them avoid the pitfalls of chasing unattainable dreams.

The Long Game: Building a Career, Not Just a Job

The most successful sales teams aren’t built on quick wins and constant turnover. They’re built on a foundation of strong leadership, sustainable compensation plans, and a focus on long-term growth. By fostering an environment where AEs can thrive and develop their skills, you’re not just building a team—you’re building a legacy of success.

Encourage your AEs to see beyond the immediate paycheck and to focus on building a career that’s both rewarding and sustainable. Help them understand that the real path to financial success lies in their ability to perform consistently and to grow within the company.

Embrace the Challenge

As a VP of Sales, you’re not just managing a team; you’re shaping the future of your company. By setting clear, realistic compensation plans and focusing on long-term growth, you can create a sales team that’s motivated, successful, and aligned with the company’s goals. Embrace the challenge, and you’ll not only grind the axes of unrealistic expectations but also build a stronger, more resilient sales organization.