Account manager compensation plan: A complete guide on strategies, best practices

Pew Research Center report indicates that 56%¹ of employees cite inadequate pay as a key reason for seeking new opportunities. This aligns with the Salesforce State of Sales report², which reveals that unrealistic goals as a significant reason for turnover among representatives.  

These results showcase the critical importance of establishing a competitive compensation plan within the organization, especially for the account managers. A well-structured account manager compensation plan addresses both common causes of employee turnover. 

First, it provides clear and measurable performance goals, ensuring account managers understand what's expected of them. Second, it goes beyond simply outlining expectations by offering incentives that motivate them to achieve those goals. Therefore, this blog will guide you through creating such a plan to retain your top account management talent. 

Why fixed salaries don’t work for account managers? 

A Gallup study found that salary and benefits were the most important reasons employees quit their jobs in 2023. To attract and retain talented account managers, companies should develop a competitive compensation plan that addresses current employee satisfaction issues. 

The study also revealed that 58% of respondents would be more likely to stay if offered a significant raise or improved benefits. Fixed salaries alone may not be enough to motivate account managers to exceed expectations. Let's explore why incentives are important for account managers. 

Lack of motivation: Fixed salaries are one of the least motivating compensation plans. Account managers need incentives to perform well and go the extra mile. Fixed salaries do not provide these incentives, leading to a lack of motivation.  

Inadequate incentives: Account managers are responsible for client retention, additional client services, and agency profitability. Fixed salaries do not reward them for these key performance areas, which are crucial for the agency's growth and success. 

Misaligned goals: When account managers are paid a fixed salary, their goals may not align with the agency's goals. Bonuses and commissions can ensure that their interests are aligned with the agencies, as they are incentivized to perform tasks that benefit both parties.  

Limited performance recognition: Fixed salaries do not clearly recognize performance. Bonuses and commissions can explicitly reward account managers for their achievements, making them feel more valued and appreciated for their contributions. 

Understanding the need to include the compensation, let us now cover what kind of compensation plan works best for the account manager.  

What are the best account manager compensation plans to drive retention? 

While a competitive base salary is important, the best account manager compensation plans to drive retention focus on bonuses that incentivize the right behaviors: 

Retention Bonus: This rewards account managers for keeping existing customers happy and renewed. This bonus could be a percentage of the retained account value. 

Growth Bonus: This motivates account managers to expand existing accounts through upsells and cross-sells. This bonus could be tied to the increased revenue from these expansions. 

Profitability: It can be indirectly incentivized through the structure of retention and growth bonuses.  For example, bonuses could be higher for renewals with higher profit margins. 

By combining these elements, you create a compensation plan that aligns the goals of the account managers with the company's goals of keeping customers happy and growing the business profitably. Take this renowned commercial products company as an example.  

What metric to tie your AM comp plans to? 

The best metric for your AM compensation plan depends on your company's goals. However, if you want to prioritize customer retention, then you should: 

Try to implement the GRR or Gross Revenue Retention plan. The metric for this plan will solely focus on retaining the existing revenue stream from your existing customer pool. By tying this type of metric into the account manager compensation plan, you can reward the AMs based on how well they keep the customer churn in check. Such a method would ensure that the AMs get the push to get the existing contracts renewed. 

If you want to prioritize customer growth, then you should: 

Use the NRR or Net Revenue Retention. This rewards AMs for both retaining existing customers and growing revenue through upsells and expansions. Tying up NRR with account manager compensation plan would prompt the AMs to open themselves to upselling opportunities.  

This metric considers customer retention and upselling opportunities. With this, you can retain existing clients and encourage them to expand their service subscriptions or purchase additional products. Such a type of metric holds the potential to drive overall revenue growth. 

If you want to balance both growth and retention, then use a combined Gross & Net Revenue Retention plan. This blended approach motivates AMs to achieve success in both areas. There are a few elements that could also be used to uphold the AM's performance. They are: 

• Achievement of quota: This measures the AM's ability to secure a specific amount of revenue or sales within a set timeframe. 
• Customer acquisition cost (CAC): A lower CAC indicates the AM is efficiently bringing in new customers. 
• Customer lifetime value (CLTV): This metric rewards AMs for acquiring customers who bring long-term value to the company. 
• Customer retention rate: A high retention rate signifies AM’s success in keeping existing customers happy. 

Consider a balanced approach that combines metrics. Let us go through how this globally acclaimed luxury auto-brand implemented a well-structured compensation plan for the whole team that led to their overall success, with a 96.2% increase in payout adoption. 

Now we have identified the key metrics for evaluating account manager performance.  Let's now discuss how to create a comprehensive compensation plan for account managers. 

How to create the best account manager compensation plans? 

Some key considerations for creating effective account manager compensation plans require you to, 

• Define clear objectives: Ensure the plan aligns with the company's goals and objectives, such as revenue growth, customer retention, or new client acquisition. 
• Balance base salary and incentives: Offer a competitive base salary to attract top talent and combine it with performance-based incentives to motivate high performance. 
• Set achievable targets: Establish realistic and clear performance targets. These should be challenging yet attainable to keep account managers motivated. 
• Include non-monetary benefits: Offer additional benefits like health insurance, retirement plans, and professional development opportunities. 
• Regularly review and adjust: Periodically review the compensation plan to ensure it remains competitive and aligned with market trends and company performance. 
• Incorporate feedback: Gather input from account managers to understand their needs and preferences, ensuring the plan is motivating and fair. 
• Ensure transparency: Communicate the details of the compensation plan to account managers, including how their performance impacts their earnings. 

To create the best account manager compensation plan, one must tie in best practices.  

Account manager compensation plan best practices 

We will develop best practices by analyzing case studies, focusing on German luxury car manufacturers, and considering the needs of commercial product organizations.

1. From the luxury automobile company, we learned to:

• Perfect communication and maintaining transparency. The challenge faced by the luxury automobile company was a lack of effective communication regarding commission programs and incentive structures across its 33 franchise locations. The implementation of Compass provided a unified platform that streamlined communication. 
• Introduce centralized incentive management. The luxury auto brand needed to configure incentive payout programs at both the sales executive and team leader levels every month. So, introducing Compass as a centralized management of incentives allowed for a more organized and efficient disbursement process. The ability to upload, manage, and distribute incentives from a single hub ensured that all sales representatives were on the same page regarding their earnings and potential rewards. 
• Build a stance for engagement. The use of community groups within Compass fostered a sense of belonging and collaboration among the sales teams. This approach not only improved engagement but also helped build a connected community among franchisee sales forces, which is crucial for a company with a large and dispersed workforce. 

2. From the global commercial product company, we learned to: 

• Align the compensation for the account managers with the company goal. The company designed the account manager compensation plan to align with its key objectives, which included retaining current customers, expanding sales of new products to existing customers, and improving days sales outstanding. This helped the organization greatly to deliver the account managers with compensation that they needed to push through.  
• Implement key account plans aggressively. By tying account manager bonuses to these metrics, the plan incentivized behaviors that supported the company's overall strategy. 
• Create a thorough bonus structure. The commercial product company placed a structured bonus plan, which included participation requirements to maintain transparency, metrics based on unit performance and types of performance, and specific bonuses tied to monthly revenue renewal and new product sales. Not only that, but they incorporated methods for crediting sales and sharing goals among team members. Structuring the bonuses with set rules provided clear financial incentives for account managers to meet and exceed their goals. 

By maintaining the best practices for the account manager compensation plan, you will notice: 

• Enhanced collaboration between sales executives and account executives 
• Customer satisfaction and contract renewals, as noticed via the commercial product company, and the German luxury auto brand that recorded a 96% Compass adoption rate.  
• The bonus structure effectively motivated account managers to focus on renewals upsells, and customer relationships, leading to better business outcomes for the company. 

Conclusion 

Sales compensation plans should motivate account managers to grow accounts. This can be done by creating a pay structure that rewards account growth and ensuring that plans are clear and detailed.  

The path to growth starts with sales leaders understanding where and how sales efforts fall short of identifying and implementing appropriate account manager compensation plan changes. This can be done by evaluating current sales performance on renewals, cross-sells/upsells, and new revenue against projections and growth targets. Therefore, implement an accelerator like Compass to: 

• Automate the incentive program. This automation helps to eliminate errors and delays associated with manual processes. 
• Get real-time performance insights. Get visibility into performance metrics and commission information.  
• Create a flexible compensation plan for your account managers. Compass can handle both simple and complex compensation structures, making it adaptable to various business needs.  

Lastly, Compass offers predictive analytics and powerful insights so that organizations can plan better across teams and make informed decisions regarding compensation strategies. So, schedule a demo call with our specialists to find out how you can draft a perfect account manager compensation plan for your AMs. 

Citation 

1. Parker, K., & Horowitz, J. M. (2022, March 9). Majority of Workers Who Quit a Job in 2021 Cite Low pay, No Opportunities for advancement, Feeling Disrespected. Pew Research Center. https://www.pewresearch.org/short-reads/2022/03/09/majority-of-workers-who-quit-a-job-in-2021-cite-low-pay-no-opportunities-for-advancement-feeling-disrespected/  

2. Salesforce State of Sales Report. (n.d.). Salesforce.com. https://www.salesforce.com/resources/research-reports/state-of-sales/