Base salary, also called fixed pay or guaranteed compensation, is the guaranteed portion of an employee's total compensation. Base salary is paid regularly (typically monthly or bi-weekly) regardless of the employee's performance or company results.
For salespeople and other employees with variable compensation, base salary forms the stable foundation of the compensation package. While the variable portion (commission, bonus) fluctuates with results, base salary remains constant and provides the employee with financial predictability.
Base salary is typically the largest single component of Total Target Compensation (TTC), particularly for roles with lower risk profiles or in industries with longer sales cycles.
Base salary plays several crucial roles in a compensation strategy:
Base salary provides employees with a stable income that covers fixed expenses like housing, insurance, and daily living costs. This reduces financial stress and allows employees to focus on their work.
A competitive base salary is often crucial for attracting qualified candidates. Many job seekers evaluate base salary first and view variable pay as a bonus rather than part of their expected income.
A fair base salary reduces the risk of employees seeking other positions. Even during periods of lower sales results, base salary ensures that talented employees don't feel compelled to change jobs.
When companies expand to new markets or launch new products, a higher base salary can compensate for increased uncertainty around variable pay.
Pay mix describes the ratio between base salary and variable pay in total target compensation. Here are typical pay mix models:
When companies set base salary, they should consider the following factors:
Base salary should be competitive relative to similar roles in the same industry and geography. Use salary data from sources like Salary.com, Glassdoor, Levels.fyi, or industry-specific surveys.
Complexity, leadership responsibility, and strategic importance should be reflected in base salary. A senior account executive should have a higher base salary than a junior salesperson.
The employee's experience, education, and specialized skills influence the appropriate base salary.
Salary levels vary significantly between regions. A base salary in San Francisco should typically be higher than in smaller cities to reflect differences in cost of living.
Startups often offer lower base salary compensated by stock options, while established companies typically pay higher base salaries.
Here are indicative base salary levels for typical sales roles in the US market:
Understanding the difference between base salary and variable compensation is central to compensation design:
Base salary should be adjusted regularly to remain competitive:
Most companies conduct annual salary reviews where base salary is adjusted based on:
If market data shows that base salary has fallen behind competitors, an extraordinary adjustment should be considered to retain talent.
For key employees the company wants to retain, a proactive base salary increase can be an effective retention strategy.
Some companies provide automatic cost of living adjustments to ensure base salaries keep pace with inflation.
When documenting base salary in employment contracts, the following should be included:
To understand base salary in the context of sales compensation, these terms are important:
Effective administration of both base salary and variable pay requires clear structures and reliable systems. Prowi helps companies:
Book a demo today and see how Prowi can streamline your compensation administration.