COMPENSATION FOR HIGH

PERFORMANCE

COMPENSATION IS MORE THAN

MONEY
Any type of sales organization can
reward sales performance in three
fundamental and interrelated ways:
1. Direct financial rewards.
2. Career advancement and personal
development opportunities.
3. Non-financial compensation.

A sales reward system is not the only

means of motivating salespeople, but it
is the most important.
Measuring sales performance but not
properly rewarding it severely limits the
achievement level for salespeople.

OBJECTIVES OF A COMPENSATION PLAN

Companys point of view
1. To control individuals activities (activities like selling, prospecting,
payment collection, building customer relationship.

2. To be competitive, yet economical (try to setup balance between

salespeoples expenses and the economical compensation plan.

3. To be flexible ( to adapt to new products, volatile markets, and differing

territory sales potential.)

Salespersons point of view

1. To have regular and incentive income.
2. To have a simple plan.
3. To have a fair payment plan.

DESIGNING AN EFFECTIVE SALES COMPENSAITON PLAN

determine job
descriptions

establish
specific
objectives
Decide levels
of
pay/compens
ation

Pretest,
administer, &
evaluate the
plan
Decide
indirect
payment plan

Develop the
compensatio
n mix

1. DETERMINE JOB DESCRIPTIONS

Company has to examine the job descriptions of

various positions like sales trainee, senior salesperson,
and key account executive, with detailed job
responsibilities and key performance standards, for
compensation purpose

2. ESTABLISH SPECIFIC OBJECTIVES

Compensation plans should have general and specific
objectives:
Attaining yearly sales volume and gross margins (general).
Attaining monthly sales volume and sales on specific
products
(specific).
Market penetration and exploiting the territorys potential
(general).
Call management and development of potential in key
accounts as well as development of new accounts (specific).
Introduction of new products (specific).

3. DECIDE LEVELS OF PAY OR COMPENSATION

A Level of pay means the average pay or money earned by
the salespeople per year or per month.

Levels of pay is based on certain factors mention below:

the levels of pay for similar sales positions in the industry.
the levels of pay for comparable jobs in the company.
education, experience, and skills required to do the sales
job.

4. DEVELOPING THE COMPENSATION MIX

The most widely used elements of compensation mix are:
Salaries
Commissions,
Bonuses
Indirect monetary benefits (fringe) such as paid vacation,
sickness, pensions, life insurance

5. DECIDE INDIRECT PAYMENT PLAN

Indirect payment plan such as fringe benefits, give a
degree of security to salespeople and make them
loyal to the company.
Fringe benefits, range from 25 to 40 percent of the
total sales compensation package.
Fringe benefits are in the form of medical
reimbursements, group life insurance, travel
insurance, accident insurance, pension plan,
provident fund, paid vacations etc.

6. PRETEST, ADMINISTER, & EVALUATE THE

COMPENSATION PLAN
PRETEST THE PLAN
Before a new plan is introduced, it should be pretested with a computer using past sales, and possibly
forecasted sales, to determine what happens to
company profit and to the top, median, and marginal
performers:
In boom times
During a recession
If old products are dropped or new ones added

6. PRETEST, ADMINISTER, & EVALUATE THE

COMPENSATION PLAN
ADMINSTERING
The company must carefully sell the plan to the
sales force. If it introduces the plan at a national or
regional sales meeting, it should explain the plans
rationale and then show the sales force what the
average member would earn for a good job and for a
superior job. Even more convincing managers should
give each salesperson a chance to calculate what the
incentive payments would be for the persons salary,
territory, and various sales levels.
After it is in effect, the plan should be continually
promoted or resold to the sales force.

6. PRETEST, ADMINISTER, & EVALUATE THE

COMPENSATION PLAN
EVALUATING
Did the sales force reach its objectives? is the main
question to be answered when evaluating any pay
plan. If the answer are positive, then they should
keep the plan or else they should find out why and
determine if the reasons are related to pay. It could
be that some minor adjustments need to be made in
one of the plans components.
Plans may be evaluated on quarterly, half-yearly or
yearly basis.

TYPES OF COMPENSATION PLANS

(A) STRAIGHT SALARY

Of all the compensation plans, the straight

salary plan is the simplest: The salesperson is
paid a specific Rs/dollar amount at regular
intervals.

Situations where straight-salary plans can be used:

sales trainees, who are involved in learning

about
the job, until training is completed.
missionary sales activities, involved in
spreading
information widely instead of asking for
order.

(B) STRAIGHT COMMISSION PLANS

The straight commission plan is a complete
incentive plan. If salespeople do not sell
anything, they do not earn anything.
The sales manager has to decide on the following
factors in developing a straight commission plan:
Commission base: the base (sales volume) on
which the salespersons performance is measured
and commission will be paid.

 Commission rate : It is the rate to be

paid per unit, usually expressed as a
percentage of sales or gross profit.
Commission start: the starting point for
the commissions payment, that is, after
selling the first unit or after reaching a sales
quota.
Commission payout: commission to the
salespeople is paid after the customer is
billed an payment received, and not after the
order is obtained.

Situations where commission plans can be

used:

Little non-selling, missionary work

involved.
The company cannot afford to pay a
salary
and wants selling costs to
be directly related to sales.
The direct-sales industry, such as
Amway,
Tupperware etc. pays by straightcommission
to a large number of salespeople also
known
by independent contractors.

(C) COMBINATION PLANS

Under a combination salary plan, a proportion of the
salespersons total pay is guaranteed, and the rest is
incentive pay. These are the key questions management
must answer when designing a salary-plus-incentive plan:

1. What should be the split between the guaranteed salary

and the average or maximum incentive payment?
2. On what basis should the incentive be calculated?
3. who should participate in the plan?
4. How is the salary administered?
5. When should incentives be paid?

The three different types of combination compensation

plans used by most of the companies are:
Salary plus commission plan
this plan focus on the balance between the fixed (salary)
and variable (commission) components of a
salespersons pay.

Salary plus bonus plan

The companies opting for salary plus bonus plan, want
to control selling and non-selling activities of the sales
force with a larger portion of fixed element of salary,
and still present some incentive to achieve either a
short-term or a long-tem objective.
Long term objectives may be achieving a higher level
of customer satisfaction and customer retention. While
short-term objectives could be introducing new
products, or prospecting for new customers.

Salary plus commission plus bonus plan

This plan allows a company an adequate control of
sales force activities, an incentive to increase sales to
the expected level, and a bonus to achieve specific
goals like developing new customers and introducing
new products.
This plan is suitable for companies who sell seasonal
products like fans and air conditioners.

When to Use a Combination Salary

Plan
To motivate the sales force.
To attract and hold good people.
To direct the sales force efforts in a profitable
direction.