COMPENSATING THE SALESFORCE
Compensation
A widely used method or tool for motivating
salespeople.
Compensation structure of sales force are
Financial Compensation: Direct payment,
Indirect payment
Non financial Compensation
Objective of a Compensation Plan
Company’s viewpoint: Salesperson’s viewpoint:
Retain, motivate competent To have regular & incentive
salespeople income
To control salespeople’s To have simple plan
activities
To have a fair payment plan
To be competitive yet
economical
To be flexible
Designing an Effective Sales
Compensation Plan
Examine job descriptions
Set up specific objectives
Decide levels of pay/compensation
Develop the compensation mix
Decide indirect payment plan
Pretest, administer, and evaluate the plan
Examine job descriptions
Various sales positions, such as missionary salespeople,
sales engineers and driver salespeople are called
horizontal positions/jobs.
Vertical positions like sales trainee, senior sales people
and key account executive.
Each of these needs a separate job description, with
detailed job responsibilities and key performance
standards to know how much to pay.
Set up specific objectives
Derived from company’s sales and marketing
objectives.
Select those, over which salespeople have
maximum control.
That should be measured by the company, like
selling expenses, sales volume and number of sales
calls made.
Decide level of pay or compensation
Level of pay for similar sales position in the
industry
Level of pay for comparable jobs
Education, experience and skills required to do
the sales job
Developing the compensation mix
Elements of compensation mix are: salaries,
bonuses and benefits/ indirect monetary benefits
such as paid vacation, sickness leave, pensions,
which are also called fringe benefits, perquisites or
perks.
Basic types of Compensation plans
a. Straight salary,
b. Straight commission and
c. Combination of salary, commission, and bonus
Developing the Compensation plan
Basic types of Compensation plan
Straight Salary
Straight Commission
Combination of salary, commission and
bonus
Straight Salary plan
It is a direct monetary reward
It is related to unit of time
It is a fixed component
Advantage: Secure income, develop sense of loyalty to the
company & customer, perform non selling activities, simpler to
administer.
Disadvantage: no financial incentive, burden to new firms, lead
to adequate performance.
Situation suited: Sales trainees (until training is completed), for
missionary sales activities, to introduce new line of products/
enter a new territory.
Straight Commission plan
It present strong financial incentives in order to ensure superior
performance.
Opposite to straight salary plans.
A commission is a payment for the performance of a unit of work.
Here sales manager has to decide on the following factors-commission
base, commission rate, commission start & commission payout.
Advantage: Improve results, attract high performer & remove
ineffective, controls selling costs, require less supervision.
Disadvantage: focus on getting sale, less control on non selling
activities, little loyalty, may earn more than managers.
Situation suited: Real estate & Insurance, direct sell Industry,
Wholesalers who have limited working capital.
Combination Plan
Salary plus Commission: Achieve balance between fixed and
variable component. Most suitable when company wants to get
increased sales & superior customer service
Salary plus bonus: Used for controlling selling and non selling
activities. To achieve either a short/ long term objective. Uses bonuses
to reward team performance.
Salary plus commission plus bonus : Allows companies to have
adequate control of sales force activities, an incentive to increase sale &
a bonus to achieve specific goals, developing new customers. Use for
seasonal product sale.
Commission plus bonus: Not a popular plan. It is used when team
selling activities are practiced for major customer.
Advantage
The company can have control over the activities of sales
people.
Flexibility to reward
Feeling of security for salespeople
Different combination plan can be developed
Disadvantage
More complex and difficult to administer.
More important long term objective can be delayed.
It may not achieve desired objectives if not carefully planned.
Decide Indirect payment plan
Which is also called fringe benefits, perquisites or perks.
These are medical reimbursements and payments, life
insurance, travel insurance, pension plans, PFs, paid vacations
and so on.
Helps satisfy safety and security needs some contribute to
fulfillment of esteem needs. (social club fees, automobile)
In order to remain competitive with others. Help to attract
applicants. Increase loyalty for company.
Pretest, administer and evaluate
Pretesting: Before a new compensation plan is adopted, the company
should pretest and evaluate it.
To know its impact applied in one or more branch sell offices.
It should be done with the involvement of all concerned people like
salespersons, sales managers, human resources and finance
executives.
Administering: Help the company to make some changes in the
proposed plan based on feedback and results. Some companies
outsourcing the administration.
Evaluating: After the new plan is established, it should be evaluated on
quarterly, half yearly or yearly basis. They find out whether the objective
have been achieved or not. If not then find out the reason and change it.
