SALES FORCE

COMPENSATION
• Objective
• Characteristics
• Types
• Steps in designing Compensation Plan
INTRODUCTION
⚫ A good compensation plan is vital for the organisation.
⚫ In countries such as India, compensation plays a great
role in motivating people and managers are often
advised to pay according to the nature of duties of
salespeople.
⚫ Compensation has a direct bearing on the moral and
productivity of the organisation.
⚫ The salespeople should be paid purely based on
managerial objectives, value system of the organisation
and long-term goal of the organisation.
Objectives
⚫ To attract quality salespeople.
⚫ To improve the productivity level of
existing salespeople in the organisation.
⚫ To retain quality manpower and reduce
attrition rate.
⚫ To establish a good rapport between the
sales force and the sales supervisors and
managers.
 Characteristics of an effective
compensation plan
⚫ The reward system should address the short-term as
well as long-term issues of the salesperson.
⚫ The sales compensation should address fair wage to
the salespeople.
⚫ The salary should have a fixed component and regular
flow of income.
⚫ The compensation plan should be linked directly to
the efforts and performance of the salesperson.
⚫ A sound remuneration plan should be based on the
principles of equity and equality.
⚫ A comprehensive sales compensation programme
should be economical to the company.
 Factors influencing design of
compensation plan
⚫ Financial ability of the firm to pay the
employees on a continuous basis at the
current and future period of time.
⚫ Size of the market.
⚫ Nature of the product (B2B/B2C).
⚫ Sales person’s qualification, previous work
experience, ability to sale.
Types of Compensation Plan
⚫ An effective compensation and reward
system management involves selection
and proper utilisation of organisational
rewards to direct the sales staff behaviour
towards attaining organisational
objectives.
⚫ Compensation is defined as the financial
and non-financial methods of rewards for
the sales staff.
Financial Compensation
⚫ It includes a fixed component, a variable
component linked to the salesperson’s
productivity, expenses and fringe benefits.
⚫ Straight Salary Plan.
⚫ Straight Commission Plan.
⚫ Bonus & Incentives.
⚫ Salary plus incentive plans (Combination
Plan).
⚫ Drawing Account & Commission Plan
Straight Salary Plan
⚫ Under this method, a salesperson’s salary is the pay
cheque that he/she receives at the end of a specific
period.
⚫ Fixed Salary Plan/ Salary & Increment Plan/ Salary &
Allowances Plan.
⚫ Advantage- 1. Stable & Regular flow of income for the
salespeople. 2. It stimulates higher morale and spirit
among the salespeople. 3. It simplifies the tasks of sales
manager to project the payrolls.
⚫ Disadvantage- 1. Lacks motivational effects. 2. No
individual measure of performance.
Straight Commission Plan
⚫ The compensation of the sales person is linked directly with his
performance.
⚫ Also called risk compensation plan in which his risk of earning is
linked to the number of units sold by the salesperson.
⚫ Salesperson is paid some fixed or sliding rate according to their
sales or profits volume.
⚫ The rate of commission varies from industry to industry, country
to country for the same industry.
⚫ Flat-rate Commission/ Progressive & Regressive rate of
commission.
⚫ Advantage: 1. Optimum amount of direct monetary benefit. 2. Helps
the sales manager to control the sales force.
⚫ Disadvantage: 1. Does not assure an assured flow of income 2.
Lacks loyalty. 3. Administrative cost is higher.
Bonus & Incentives
⚫ A bonus is defined as one sum
supplemental payment for above average
performance.
⚫ Incentives are also supplemental
compensation that allows the salespeople
to perform the desired activity to earn
additional income.
⚫ There can be continuous incentive
programme or one-time offering by the
company.
Salary plus incentive plan
(Combination Plan)
⚫ Part of the salary is given as straight salary and a
variable proportion is given in the form of
incentives.
⚫ The manager is required to create a
compensation mix, which is the relative amount
of salary, commission and bonus to be included in
the final package.
⚫ Advantage:1. Security of fixed income and
stimulus of incentives. 2. Lesser demand for
change in territory.
⚫ Disadvantage: 1. The administrative and operating
costs are higher. 2. Complex procedure.
Drawing Account & Commission
Plan
⚫ Sales organisation opens a drawing account in
the name of salesperson and credits the
commission due to him every month.
⚫ The salesperson can draw from this account
within permissible limit.
⚫ At the end of the month, if there is a credit
balance, the sales person concerned can
withdraw the amount and in case of debit
balance, it will be written off.
Non-financial Compensation
⚫ Sales organisation provide non-financial
compensation for the salespeople to
motivate them and keep them in the
organisation.
⚫ Though these compensation methods are
treated as non-financial, these are directly
or indirectly related to financial gain for
the salespeople.
 Types of Non-financial
compensation
⚫ Promotions: Higher job responsibility.
⚫ Recognition Programmes: Programmes designed to
honour salesperson’s contribution and recognize the
excellent performance.
⚫ Fringe Benefits: Employment benefits in addition to the
salary & wages. Medical benefits, retirement benefits, life
insurance etc.
⚫ Expense Account: Plans that are designed to
compensate sales personnel for the expenses they incur
on the job.
⚫ Perks: Special category of compensation available to
employees with some special status or expertise in the
company. (Status perk, financial perk & educational perk)
Steps in designing a compensation
plan
⚫ Determine sales force and compensation
objectives.
⚫ Determine major compensation issues.
⚫ Implement long-term & short-term
compensation plans.
⚫ Relate Reward to performance.
⚫ Appraise the compensation plan.