When it comes to parental leave, we’re entering a new era.
Over the past few years, hundreds of companies have dramatically increased their paid parental leave policies and introduced incredible benefits for parents. For companies hoping to attract top talent, the average paid parental leave has increased from 12 weeks to 16 weeks, and many companies are now offering 18–26 weeks.
There is also a big push for gender-neutral parental leave policies that encourage fathers to take as much leave as mothers. In fact — in my conversations with over one hundred companies, 25% of them have gender-neutral parental leave policies that allow (and encourage) parents to take months off of work to welcome a new baby.
Local and state governments are also starting to mandate and financially support paid parental leaves. While there is still so much more that needs to be done, we’re finally seeing the government take small steps forward.
To be clear — most employees in the U.S. have limited or no parental leave support. But for the very elite group of people working for companies focused on attracting and retaining top talent (read: tech companies in major urban areas), parental leave policies are better than ever.
But for some reason — even at these elite companies with generous paid parental leave programs — sales professionals are getting left behind.
First, it’s important to understand how sales reps make money.
Sales reps think about their annual pay as “OTE” (on target earnings) which is a combination of their base salary and commission. Commission is paid out usually on a monthly or quarterly basis and is calculated based on the rep’s percent to goal achievement. Normally, base pay is 50% to 70% of their expected OTE. Some reps will end up making significantly more than their OTE due to over-performing their goals, and others may make slightly less than OTE. But any rep who consistently falls short of OTE will either end up quitting or being laid off.
Everyone fully expects sales reps to make their OTE each year, and if they don’t make OTE, the reps leave the company.
In order to hit OTE, a sales rep has to do many things over time to set up their “sales machine”: find people to contact, set meetings, hold meetings, work opportunities through a full sales cycle, and finally close deals. This process can take a long time to complete depending on the product/service, which is why every new company has a “ramp period” for a new rep. The ramp is either a much lower quota or guaranteed commission payment for a set period of time when a rep joins a company. The intent is to allow the rep to get their sales machine up and running without punishing their take-home pay.
At most companies, when a sales rep goes on parental leave they are only guaranteed their base salary, not their OTE. Their pipelines are typically handed off to another AE to “cover” for them while they are out, and in most cases the company will say “if this new rep closes something from this pipeline while the original rep is out on leave, the two reps will split commission 50/50.”
In some instances, the sales manager may take over the pipeline and any deals closed would be credited 100% to the AE on leave.
Both of these examples are an attempt to apply the “pay for performance” standard sales comp plan to someone who is on parental leave.
This comp plan is bad for the parent on leave, the manager and the business results due to:
Then, there’s the issue of ramp.
At most companies, when a sales rep returns from parental leave they have a normal quota instead of a ramp quota. So they return to work with limited to no pipeline, yet are paid and evaluated against a fully productive AE quota.
This parental leave compensation structure usually results in dramatically reduced and unfair earnings for a new parent AE, and has lasting and detrimental effects on an AE’s career trajectory.
It’s unfair. When a company makes a decision to offer a certain amount of paid parental leave, they are doing so with full understanding that this is going to cost them money. Every other employee at the company is getting their full normal pay while on leave, and their manager and the business accepts that output for that team will decrease. And yet, most companies still will only guarantee their sales reps just their base pay during this time, and often, the business will expect the sales team to hit numbers as though the sales rep isn’t on parental leave. This makes the situation unfair for the sales manager as well.
This perpetuates the already low representation of women in sales, particularly at more senior levels because:
This disincentivizes retention. It’s often easier and more lucrative for a sales rep to recruit for a sales role at a different company while they’re on leave, so when they return they are able to join a company that gives them a ramp goal and offers better earnings opportunities. Also — as more companies begin to realize this issue and pay sales reps 100% OTE while on leave, the companies that don’t do this will lose top talent.
Fathers aren’t taking their full parental leaves, which contributes to even more gender inequality. When a non-birthing AE is presented with two options (keep working and make 100% OTE this year, or take a 12 week parental leave and underperform for 1–3 quarters), they will almost always choose the former. This pay structure completely disincentivizes fathers from taking full parental leaves. This in turn contributes to ongoing gender inequality in sales.
This will eventually hurt companies’ ability to attract top talent. As more sales organizations advocate for better comp plans for parental leave, the companies that ignore this problem will be much less competitive from a talent perspective.
It depends. It’s easy to point out how comp plans for sales reps on parental leave are broken, but it’s much harder to put together “the right way” to do this.
Below I offer some principles and guidance for companies to consider as they seek to create their parental leave comp plans.
How you should think about your sales parental leave comp plan
You should have three guiding principles:
Guiding Principle #1: Focus on delivering the best possible customer experience:
Guiding Principle #2: Pay the AE on parental leave as if they are still at work fully productive
I have a simple framework I recommend:
What would they be paid if they were here “producing”?
Exceptions for major outlier deals:
Ramp goal upon return:
This should ideally be fairly simple and data-driven. Plug certain assumptions into a sales model to tell you what an appropriate ramp goal will be:
Guiding Principle #3: Incentivize all stakeholders to optimize the results of the business (aka how to handle the pipeline)
Most of the time, the right solution is to assign the pipeline to other AEs.
This means you will be “double paying” in the sense that you are guaranteeing the AE on parental leave full OTE, and you are paying commission to the reps that end up closing the deals while he/she is out.
While this feels uncomfortable to most sales managers, it really shouldn’t. Instead, think of it this way: the business is paying for the parent on leave, not the sales team. In fact, many states (NY and CA just to name the two big ones) pay for a decent percent of an employee’s salary while on parental leave.
So — as a sales manager you can do what every other manager does in the business: either eliminate this person’s work (pause their sales?!), or spend additional money to help cover that work. Many companies and functions will actually bring in temp staff when someone is on leave to bridge the gap. When you hand over a deal to another AE to try to close it while the original AE is on leave that’s essentially what you’re doing as well.
When the AE returns from parental leave you should decide how to “hand back” their pipeline. Most companies handle this by saying the returning AE gets their pipeline back, and anything they close in the first 1–2 months back gets double credited to both AEs. Some companies will not hand the pipeline back if they have very short sales cycles. This should be a decision based on business and sales specifics.
There are a few other things I recommend every sales organization consider as it relates to parental leave:
Writing a good policy for parental leave commission involves deep analysis of your company’s specific sales process, product and team structures. It’s hard to figure out what is fair, what is good for the business, and what behaviors a company wants to incentivize.
But after working with hundreds of expecting employees — many in commission-heavy roles — I am convinced that companies can dramatically improve their parental leave commission plans if they utilize the framework I presented here.