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Every board is asking how the company is leveraging AI. At first they just wanted to make sure the company was using AI, but now they want to know:
What are you doing that actually adds value for customers?
What are the best use-cases for internal work?
Are you moving faster and/or more efficiently yet?
Brex’s The CFO Guide to AI Strategy is a great resource for CFOs to see where other finance teams are finding the best AI use-cases right now. I have implemented most of this myself…
The Highest Paid Person
Many people assume the CEO, CFO, and other executives are the highest paid people at the company. A benefit of being in finance is you get to peek at everyone’s compensation, which sometimes comes with questioning your career choices.
There are two components of an employee’s total compensation:
Cash - base salary + bonus
Equity - stock options, RSUs, etc
For private companies (particularly those without an active secondary market), the highest cash-basis earners are almost never the exec team. If they are the highest paid, then something is probably wrong at the company (like flat revenue growth).
Who’s getting the most cash?
It should almost always be your sales reps. How many reps are earning more than the exec team is usually a function of company size and how many sales reps you have.
Top 10 Paid Employees (cash-basis) at ~$250M ARR Mid-Growth Company
I recently spoke with a CFO at a mid-size software company with decent revenue growth. Below were their top 10 highest paid folks:
Notice anything? It’s mostly sales folks…Other than the CRO (who owns sales), no other exec was in the top 5 (but they are doing OK too :)
How Much Does the Top Sales Rep Typically Make?
Below is survey data from RepVue on how much the top earner makes in a year (base, commissions, bonus, etc)
Most of these top-earning sales reps would be the highest paid people at their companies (with the obvious exception of the public ones).
Are we paying sales reps too much?
As painful as it might be to approve those 6-figure commission checks, you can’t conclude that just because a sales rep (or a few) are making a ton of money that the commission plan is broken.
All else being equal, I would love to hire great sales reps and pay them half as much and still close the same number of deals. Efficiency goes way up, right?!?!
Nah. That wouldn’t actually happen…
Your best sales reps are highly paid, but also they create the most sales efficiency. The reps you should be worried about are the mediocre ones. They are the expensive ones.
Example: Top Rep vs Mediocre Rep
The below compares two enterprise reps with the same OTE and quota. Except one rep closes $1M in ARR (or 77% attainment) while the other rep closes $5M (or 385% attainment). The “Top Rep” gets massive accelerator commission rates (20%) on everything over $1.3M in bookings while the “Mediocre Rep” earns just 11.5% commission rates on everything he closes.
CEO: Whoa…We are paying “Top Rep” too much! He is getting 20% commission rates and made over $1M.
Me: If you compare Top Rep’s cost to ARR, he is only 74% the cost of Mediocre Rep…He is our highest ROI Rep.
But even the above scenario doesn’t capture the true value difference based on my experience… Because the best reps usually:
Discount less - so gross margins are better on their deals
Qualify accounts better - so churn is lower on their deals
Set better expectations - Fewer concessions and less CSM work
Not saying they are perfect at all of these, but the mediocre/poor reps are usually more desperate and less experienced in all of these areas. If you haven’t, build a report to look at average discounting % by rep. It’s usually interesting…
How Much is Too Much?
While top-performing reps are more efficient, CROs and CFOs need to figure out the best balance - pushing higher revenue while improving GTM efficiency. If all your sales reps are crushing quota, then your comp plans aren’t aggressive enough.
If you average the attainment numbers of all the companies from the RepVue chart then you get an average of ~60% of reps hitting quota. Ie only 60% of sales reps are at least getting their OTE while the remaining 40% are not.
There are a few different thoughts on what attainment targets should look like:
Dave Kellogg says 80% of reps at 80%+ attainment
Others say 80% of reps at 100%
Team-wide quota at 75%
And many other versions of the above
Too high, not aggressive enough. Too low and the best reps will leave and a sales death spiral will happen. So if your top 10 earners are all sales reps then you may have a problem (not aggressive enough).
Two things are always true for growing companies:
Quotas are increasing
Territories are shrinking
What About Total Compensation?
Total theoretical compensation is almost always the highest for the executive team (CEO, CFO, CRO, COO, GC, CMO, etc) because of the size of their equity grants.
The top sales rep from my example above (making $870K) has VERY little equity. Like 0.005% of fully diluted. Maybe he will make $100K - $200K if things go really well with his equity.
The executives have 100x+ that…
If the company is public or has a decent exit, then the exec equity will be worth a lot more than the difference in cash-basis compensation. But…for most companies the “decent exit” is a BIG if.
Below is Fastly’s pay mix for its executives (CEO vs other execs). Only 11% of compensation is cash (salary and bonus)…The rest is tied to equity that is either service-based or performance-based.
Below is the pay of 5 public company CFOs and their relative cash versus equity mix.
Why I Love When Sales Reps Make a Ton of Money
And here is why every CFO, CEO, and any other exec should be cheering when their top sales reps are making a lot of money.
$1M incremental ARR booked at accelerator commission rates is $200K in commissions to the sales rep. But it also represents $100K in additional equity value for the CFO (assuming 1% ownership and a 10x revenue multiple)…And I am, theoretically, getting this much richer every time a deal is closed (assuming there is, or will be, a market for my shares).
We want sales reps worried about commissions, while execs worry about enterprise value.
Final Thoughts
Yes, sometimes I get jealous when I approve 6-figure commission checks but then I remember that hopefully means things are working well. And that my equity value is growing.
Occasionally an easy whale deal will fall into a sales rep’s lap, but the consistent top performers work REALLY hard and are 100% worth the massive commission payouts.
Footnotes:
Check out The CFO Guide to AI Strategy and figure out how your team should be leveraging AI to get the most ROI
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*Disclaimer: Informational and educational purposes only. Not tax, legal, or investments advice. The author may own positions in companies discussed. Do your own research.
The straightforward writing style of this article is a joy to read