Closing the Gap: Rethinking Sales Commission Structures for Gender Equality

Closing the Gap: Rethinking Sales Commission Structures for Gender Equality

By Jonny Stevens

The demand for sales talent continues to expand in Canada, with business-to-business sales professionals leading in demand. Canadian universities have launched sales-centric programs to increase the talent pool, such as the Toronto Metropolitans Sales Leadership Program and the University of New Brunswick's sales-focused MBA. The enduring demand for sales roles has existed since at least 1958, as evidenced in the academic literature. Despite the challenge of attracting talent to sales, the profession still needs to create an attractive environment for women.

Women comprise approximately one-third of Business-to-Business (B2B) sales representatives and only one-quarter of sales representatives in the rapidly growing technology sector. Women's representation dwindles as we look up the senior leadership ladder, accounting for just one-tenth of senior leadership roles. Studies show that women encounter more barriers than men, such as a lack of mentorship and organizational support, as well as higher instances of sexual harassment and discrimination. These factors have hindered both the attraction and retention of women in the B2B sales profession; factors which are experienced by women in many male-dominated industries. Unlike other male-dominated sectors, one systematic factor is potentially made worse in sales - a widening pay gap due to the design and administration of commission-based compensation plans.

Obstacles in Commission Design

B2B sales compensation generally combines a base salary with commissions. The split of base salary to commission in B2B sales can be as high as 50/50, meaning if someone is paid $75,000 in a base salary, an additional $75,000 in commissions may be paid when the salesperson achieves their sales target, also known as sales quota. Commission payments can be uncapped, and surpassing sales targets can lead to higher earnings.

Differing Attitudes Toward Commission-Based Pay

Research indicates that men and women differ in their attitudes toward commission pay. Women are less likely to work under pay-for-performance arrangements, suggesting that commission-based plans are less appealing to women. A 2015 Guardian survey found that 77% of female respondents believed they would need to be aggressive to be effective in sales and that the risk and uncertainty of commission-based plans were a deterrent. If sales commissions offer significant earning potential and women opt out of pay-for-performance roles, most of these higher earnings will go to men, potentially widening the pay gap.

Base Salary Gaps Double Total Comp Gaps

A 2020 study of sales professionals revealed that women in sales base salaries were often significantly lower than those of their male counterparts. This discrepancy is particularly troubling given that research has shown that women achieve sales quotas at higher rates than men, can effectively manage the complex relationships required for successful B2B sales and that gender-diverse sales teams outperform non-gender-diverse teams.

The pay gap between women and men in sales widens when commissions make up a significant portion of total compensation. In the scenario where total compensation is split 50% base salary and 50% commission, every dollar less a woman is paid in base salary potentially results in an additional dollar less in commission pay, doubling the wage gap between male and female employees. One industry study suggested that women in sales earned 22% less than their male counterparts.

Parental Leave Significantly Impacts Women in Sales

Women in sales face additional disadvantages when taking parental leave due to company commission policies that reward presence over deal influence. If a woman is on parental leave and absent at the time of contract signing, she may not receive the associated commission despite having invested time in the sale. When women return from parental leave, they face another sales penalty as their pipeline of potential opportunities may need to be built from scratch, creating a quarter or two of lower commission payments. Many organizations lack clear parental leave policies outlining account coverage, commission payment during leave, and a modified quota upon return to work. High-performing women often suffer the most significant wage penalty during parental leave.

Recommendations for Action

Now that we have a high-level understanding of some of the problems contributing to widening the wage gap for women in sales let’s look at some practical solutions leaders can take today.

Step One: Review Base Salary for Gaps

HR and Sales leaders can conduct regular base salary reviews for all sales professionals to ensure fair pay practices and prevent discrimination, regardless of gender or other demographic factors. Additionally, including salary ranges in job postings can promote transparency and demonstrate the flexibility of a firm's compensation policies, helping to attract diverse talent. The research underscores the importance of this transparency in fostering trust and satisfaction among employees.

Studies suggest that reducing variability in sales compensation, especially in business-to-business contexts, can help narrow the wage gap for women in sales, establishing a fair compensation structure that offers equal opportunities to all sales professionals. Additionally, by measuring the base salary and commissions paid to men and women, organizations can ensure a more accurate comparison of the total compensation package while exploring gaps. This approach by HR and sales leaders demonstrates a commitment to upholding principles of equality and diversity, which are fundamental in creating an inclusive workplace environment where all employees feel valued and respected.

Action: Review the base salary of all salespeople to see if there are any gaps. If gaps exist between people doing the same job under the same conditions (experience, geography), enact a plan to equalize the base salary of the underpaid salespeople.

Step Two: Review Variable Portions of the Compensation Plans and Ensure They Are Understood

Shifting pay-for-performance plans away from strictly revenue-based metrics (sales) to include additional organizational metrics and KPIs can help attract and retain more women in B2B sales. Sales and HR leaders should consider customer satisfaction scores, 360 reviews, and the attainment of team or firm goals as supplemental sales targets.

Although studies suggest that women may have less interest in commission plans than men, it is recognized that setting fair sales targets and clearly defining what is required to meet those targets can address women's reservations about commission-based roles. Therefore, sales leaders should spend time with all current and prospective salespeople, clearly outlining what is required to meet their target, providing details regarding where sales reps typically fall short, and maintaining an active level of coaching and mentorship.

Action: Review any variable portions of the compensation plan (commission) by first reviewing the attainment of sales representatives to see how many are achieving the plan. From there, assess whether changes are required to make the plan fair for all. Ensure that all sales staff understand the activities required to achieve the plan.

Step Three: Create Parental Leave Policies for Commission, Coverage, and Return to Work

Organizations should proactively plan for sales representative coverage during parental leave by hiring job shadows or maintaining a steady talent pipeline. Bringing on an additional hire allows them to shadow the departing sales representative, ensuring they are well-prepared to step in and provide temporary coverage during the parental leave period. This proactive approach ensures operations continuity and mitigates workload pressures on the remaining team members.

By formalizing policies related to commission pay during parental leave, companies will empower employees to fully disconnect and focus on their family responsibilities without the added stress of work-related obligations. Progressive firms are compensating women on parental leave for deals they influenced and providing a ramped or reduced quota upon return to work, demonstrating a commitment to supporting employees through all stages of their lives and careers.

Action: Review whether your firm has a policy on paying commissions during parental leave and, if so, explore whether it is being adhered to. If a policy does not exist, create one that provides commission payment for deals influenced and a modified quota (ramp plan) upon return to work.

A Call to Action

In this article, I have identified the compensation issues women in sales face. I have also provided three practical actions you can start today to begin understanding the gaps in your organization and building the case for change required to support the equity and performance of your sales team.

Commission plans tend to sit with the sales leader rather than the HR team. In my past role as the Head of Sales for a billion-dollar professional services firm, I welcomed my HR colleagues to support the design and administration of the sales commission plan. The guidance from my HR colleagues was invaluable in striving for fairness and identifying potential issues in our commission process, which I may have overlooked. Crucially, their expertise resulted in equitable compensation strategies that encouraged the correct sales behaviours and significantly improved team performance.

By providing adequate support for women during parental leave, including flexible work arrangements and ensuring fair compensation, organizations demonstrate their commitment to supporting their employees through significant life events. Additionally, addressing pay gaps and implementing equitable compensation practices fosters a sense of fairness and inclusivity. Rethinking highly variable commission plans to ensure consistency and transparency can also contribute to a positive perception of organizational support, as employees feel valued and fairly rewarded for their contributions.

Research shows that gender-diverse sales teams perform better, but the statistics showing the lack of women in business-to-business sales do not reflect this performance gain. This article has identified the widening of the pay gap as one issue and some practical recommendations for action that organizations can undertake today through collaboration between HR and Sales leaders. These recommendations for action will promote inclusivity, fairness, and support, ultimately contributing to a more engaged and productive sales force where organizations thrive.

Research Referenced

Bandiera, O., Fischer, G., Prat, A., & Ytsma, E. (2021). Do Women Respond Less to Performance Pay? Building Evidence from Multiple Experiments. American Economic Review: Insights, 3(4), 435–454. https://doi.org/10.1257/aeri.20200466

Larson, L. R. L., & Mullen, L. (2020.). Hey Blue Eyes: Sexism Still at Work in the Modern Sales Workplace. 20(2), 29.

Nsiah, C., DeBeaumont, R., & Ryerson, A. (2013). Motherhood and Earnings: Wage Variability by Major Occupational Category and Earnings Level. Journal of Family and Economic Issues, 34(2), 224–234. https://doi.org/10.1007/s10834-012-9323-2

Peesker, K. M. (2020). Walking the Talk: LinkedIn’s Best Practices to Advance Women in Sales. 20(2), 11.

Stevens, J. F. & Carroll, W. R. (2024). Underrepresentation of women in business-to-business sales: A scoping review and future research direction. Unpublished and submitted to journal for review.