COMPENSATION
MANAGEMENT
PROF. NIDHI BISHT
JASON CONRAD CARDOZO 18P134
GROUP 10 GAURAV KUMAR MISHRA 18P139
NIVEDAN KEDIA 18P152
RADHIKA SINHA 18P157
VIKRAM CHALLA 18P175
HASHMINA HAQUE 18P180
INDEX
1) Introduction
2) Compensation
3) Incentives for salespeople
4) Sales Incentive Plan
5) Observations and Inferences
6) Acknowledgements and Bibliography
INTRODUCTION
This project report aims at highlighting the sales incentive plans used by
two companies from different sectors.
Before we move onto the incentive plans of the two companies, we will try
to understand the concept of compensation and incentives. Thereafter,
having evaluating the incentive plans of the two companies in question, we
will try to ascertain whether or not the plan was well devised and can
compare it to the actual results the adoption of such a plan brought to the
company.
Through our observations we can understand the impact and importance
of compensation management.
Compensation
The different forms of pay or reward that is given to employees on
account of their employment, is referred to as Compensation.
Compensation can either be a direct financial payment or an indirect
financial payment, which is essentially pay for performance.
Compensation
Direct financial payment Indirect financial payment
(wages, salaries, incentives, (employer-paid insurance,
commissions, bonuses) vacations, etc)
In any firm, the compensation plan should be such that it aligns with the
firm’s strategic aims. A firm should be able to produce an aligned reward
strategy, which basically refers to creating such a compensation plan that it
motivates and encourages a certain behaviour in employees that can help
achieve the company’s objectives.
Incentives form a part of compensation. They belong to the variable part of
pay but are the most important drivers to attract, retain and motivate
employees at their jobs.
Incentives can be in the form of bonuses, stock options, profit-sharing, etc.
To determine the compensation that should be given for any job,
compensation managers refer to what is called as – compensable factors. A
compensable factor is an element of a job, such as a skill or attribute that
can help us compare one job with another.
While the specific elements of compensation vary from role to role, broadly
these are the few elements of compensation that are generally present in
any employee’s compensation program –
• Base pay
• Short-term benefits
o Cash bonus
o Stock bonus
• Long-term benefits
o Stock options
o Insurance
• Commissions
• Allowances for housing, travel, food, etc.
Incentives for salespeople
Few of the incentive plans that are employed for salespeople are:
SALARY PLAN
Instead of having a variable element, a simple salary is given. It can often
help foster staff loyalty, but more than that it ensures that a salesman can
change his or her location easily.
A disadvantage of this system is that a fixed salary may demotivate those
individuals who are putting in a lot of effort.
COMMISSION PLAN
This plan is a purely pay for performance plan. Results are rewarded. Such
incentive systems tend to attract highly motivated individuals. They include
systems of collection such as straight commission, quota bonuses,
management by objectives program and ranking programs.
While the commission plan is easy to compute and understand, it suffers
from certain drawbacks. Firstly, it creates a huge disparity amongst the
sales men. Secondly, the focus lies only on selling, hence non-selling
activities such as customer retention, are often ignored. Thirdly, if sales
potential were inaccurately determined, then the commission rate would
have to be changed in the future.
COMBINATION PLAN
To balance out the irregularities in the two incentive plans mentioned
above, a combinatorial approach is often used. A part of the salary is fixed
and the remaining is incentivised. This ensures that the employee receives
a minimum amount in hand, while also having something to work towards.
Different firms use variations of the combination plan, wherein they use
different incentives for the variable component. For ex. They might pay
their sales force a commission but can also reward them with bonuses for
specific achievements like selling slow-moving items.
SALES INCENTIVE PLAN
1) TransOrg Analytics
Sector – Data Science and Artificial Intelligence
TransOrg Analytics is a solution-providing firm that integrates ‘Big Data’
and ‘Predictive Analytics’, to produce scalable and cost-effective solutions
for clients. The firm uses structured and unstructured data to produce
specific products and services via open source technologies.
TransOrg Analytics’ clients span industries such as Banking, Insurance,
Travel, Telecom, Aviation, Retail, etc.
SALES INCENTIVE PLAN
TransOrg Analytics is a B2B company and finds leads either through
referrals, conferences or personal contacts.
In cases where the lead wasn’t generated via a referral or personal contact,
the following incentive plan was followed for the sales consultant in charge-
• 7% for deals up to Rs. 10 lakhs
• 5% for deals more than Rs. 10 lakhs
Being a B2B company, lead conversion is a difficult task, hence incentives
are also given as per the quarterly assessments of sales. After evaluating
the number of leads a sales consultant generated and the current status of
those leads, the Head of Sales and CEO decided on suitable incentives for
the consultant.
The performance reports and lead-conversion ratio are also referred to at
the time of appraisal.
2) Lenskart
Sector – E-commerce
Lenskart is an Indian company, with an omni-channel distribution for
eyewear. It initially started as an online shopping portal for eyewear but in
the last few years, also began opening offline stores. It offers sunglasses,
contact lenses and eyeglass, with different options for both men and
women.
SALES INCENTIVE PLAN
Incentive scheme for salesmen-
Incentive scheme for store managers-
OBSERVATIONS AND INFERENCES
1) In the case of TransOrg Analytics, given the fact that the business is
B2B and the company is not very old, this incentive plan proved to be
successful.
A sales consultant roping in a deal of about Rs. 50 lakhs, can easily
earn Rs. 2.5 lakhs as incentive. Not only is there monetary benefit, but
the reflection of the same on quarterly performance reports, also
adds to the bonus amount received by the employee and increases his
or her chance for a salary hike, at the time of appraisal.
2) In the case of Lenskart, in addition to reviewing the sales made, the
NPS or Net Promoter Score, a measure of customer experience, has
also been taken into consideration.
This ensures that in line with achieving targets, customer experience
is not hampered with. The firm’s focus on retention of customers can
be observed.
In addition, there exists separate incentive plans for salesmen and
store managers. In the case of store managers, the firm appears to be
slightly demanding, in terms of requiring a high store-target. As far as
its salesmen are concerned, the incentive policy is relatively relaxed.
But what is common to both is the focus on a minimum NPS value.
This way the firm is able to create value for both its employees and
customers, by incentivising customer experience.
Post implementation of such an incentive plan, an increase in sales
had been observed, which indicates this was a fairly successful
incentive plan.
ACKNOWLEDGMENTS
Group 10 would like to thank Prof. Nidhi Bisht for guiding us and giving us
the opportunity to present on this topic.
We would also like to thank students of the college for sharing their
experiences at their firms, which we have referred to for the purpose of our
project.
BIBLIOGRAPHY
1) Human Resource Management, Gary Dessler and Biju Varkkey
2) [Link]
