Salary Negotiations – base/OTE ratios & the perils of being overpaid
Moving jobs is often the opportunity to improve your salary and your on-target earnings. For some who have been at their current firm too long without a raise, it is often an opportunity to get marked to market rates. The lucky few get to enjoy a super-normal increase-( beyond the market for their position) and more money can only be a good thing, right? Well, interestingly enough – not necessarily!
There are a lot of nuances in the salary negotiation arena and sometimes getting a large raise in a job move can be a curse. The curse often lies dormant and then reveals itself when you need to make another move and find yourself in the awkward position of being overpriced for your skills relative to the market. This situation can and should be avoided. There are some telltale signs to watch out for and we outline these below.
In SaaS sales, you tend to see this issue more at the individual contributor end of the market than at the CRO / VP level. At the Senior levels, beauty is in the eye of the beholder, and individual packages, although somewhat formulaic can have significant deviances from the norms. For the most part, though individual contributors’ base salaries and OTE’s in the SaaS arena fall within a pretty limited range with the key factors being years of relevant industry experience, vertical relationships, and past quota and W-2 performance.
At around $80k base salary you typically see a 1:1.6 to 1.8 base to OTE ratio. As you converge on $100k base the ratio of base to OTE goes to 1:2. As you converge on $125k base salary base to OTE ratio typically drops to around 1:1.8 but you do still see 1:2 or as high as 1:3).
A solid sales leader knows that past performance is a pretty solid indicator of future performance and intuitively knows the ratios above. A good Sales leader knows how to negotiate and will ask the questions on past earnings performance (W2 numbers) and base salary details. They will focus on the candidates’ highest ever earning year and demonstrate how their package can get the candidate there or beyond that number. They may offer a modest increase in base salary but will never offer a large base or OTE increase without leverage on the part of the candidate in the form of other competing offers or an acknowledgment that the candidate in question is currently priced way below market.
Here are the telltale signs that you are dealing with the opposite type – the immature negotiator – and when you see these signs you need to seriously question the decision making and long term viability of the firm in question….
• A big bump up in salary – 20% or beyond with no negotiation leverage on your part – no competing offers or not being priced seriously below market.
• A bump in base salary that equals 75 or 80% (or above!) of the highest W2 you have ever made or your last year’s W2 number at your current role – the only exception here is if a negotiator is taking into account your run rate of commission that you are on track to earn in your current role- then it may make sense for that firm to offer you a base approx 50% of your projected W2 earnings.
• Often those base salaries are offered with generous OTEs that are purely theoretical – no-one in the firm has proven that they can be reached.
If it is too good to be true then it is probably isn’t true!
An immature salary negotiation inevitably leads to a situation where you have to test the market sooner rather than later (companies don’t survive too long paying above-market or before someone realizes they need to make corrections to the market) and this is where reality comes crashing down in the form of bankruptcies, layoffs or salary reduction requests.
If you are overpriced relative to your experience and W2 performance then all is not lost, however. There is a path out but it may involve some compromise on your part. First, you must find out what your true market value is – if you don’t know then ask a recruiter that specializes in sales positions. Often this number is the package you were on at your previous job (before the artificially high increase) plus a sensible bump up in base and OTE for a move (as long as it still remains in range of those standard ratios above). You also must make sure that your recruiter clearly articulates not just your current earnings but your acknowledgment of your knowledge of your true market value in what you are looking for in a package going forward. Without that, your next job search could take a while.
Feargall is the founder and president of Glenborn Corporation, a boutique search firm focused on Placing Sales Professionals in Web Technology firms in eCommerce, marketing and publisher ecosystems. Glenborn launched Job Elevation in November which is a proactive visual job hunting and company discovery tool inspired by the Lumascapes.