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SNDM Sem2 - Session 5

The document discusses various types of sales force compensation plans from both the company and salesperson perspectives. It outlines objectives like attracting talent while controlling costs. Plan types include straight salary, straight commission, and combination plans. Combination plans combine elements to balance sales incentives with stable income. Non-financial plans also aim to attract and retain salespeople through benefits, recognition, and perks. The best plan depends on factors like the product, market, and job requirements.

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Kunal Saini
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47 views8 pages

SNDM Sem2 - Session 5

The document discusses various types of sales force compensation plans from both the company and salesperson perspectives. It outlines objectives like attracting talent while controlling costs. Plan types include straight salary, straight commission, and combination plans. Combination plans combine elements to balance sales incentives with stable income. Non-financial plans also aim to attract and retain salespeople through benefits, recognition, and perks. The best plan depends on factors like the product, market, and job requirements.

Uploaded by

Kunal Saini
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Sales Organization Sales Force Compensation

Objectives of a Sales Compensation Plan


• From Company’s Viewpoint:
Sales Force Compensation

• To attract, retain, and motivate competent salespeople


• To control salespeople’s activities
• To be competitive, yet economical
• To be flexible to adapt to new products, changing markets, and differing
territory sales potentials
• From Salesperson’s Viewpoint:
• Should address the fair wage to the salesperson
• Should be linked directly to the efforts and performance of the
salesperson
• Should be based on the principles of equity and equality
• Should be economical to the company
• Should be based on factors such as the current industry rate, nature of
sales job, difficulty involved in realizing the sales, and the abilities and
experience required
Types of Sales Compensation Plan

• Financial Compensation:
Sales Force Compensation

• Straight Salary Plan


• Straight Commission Plan
• Combination of Salary, Commission, and/or Bonus
• Non-Financial Compensation:
• Promotions
• Recognition Programs
• Fringe Benefits
• Expense Accounts
• Perks
• Sales Contests
Straight Salary Plan
• Characteristics:
Sales Force Compensation

• 100 percent compensation is salary, which is a fixed component


• No concern for sales performance or salesperson’s efforts
• This plan is suitable for sales trainees, missionary salespeople, and
when a company wants to introduce a new product or enter a new
territory
• Advantages:
• Salespeople get secured income to cover living expenses
• Salespeople willing to perform non-selling activities like payment
collection, report writing
• Simple to administer
• Disadvantages:
• No financial incentive to salespeople for more efforts and better
performance. Hence, superior performance may not be achieved
• May be a burden for new and loss-making firms
Straight Commission (Commission Only) Plan
• Characteristics:
Sales Force Compensation

• It is opposite of straight-salary plan


• Most popular commission base is sales volume or profitability
• Commission rate is a percentage of sales or gross profit
• This plan is generally used by real estate, insurance, and direct-
sales (or network marketing) industries
• Advantages:
• Strong financial incentive attracts high performance, removes
ineffective salespeople and improves results
• Controls selling costs and requires less supervision
• Disadvantages:
• Focus is on sales and not on customer relationship
• Salespeople may pay less attention to non-selling activities
Combination Plan
• Characteristics:
Sales Force Compensation

• Combines straight salary & straight commission plan


• Types of combination plans used by companies:
1) Salary plus commission: suitable for getting improved sales
and customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment,
for achieving short-term objectives. This plan is used for
rewarding team performance
3) Salary plus commission plus bonus: suitable for increasing
sales, controlling salesforce activities, and achieving short-
term goals. Also suitable for selling seasonal products like
fans
Combination Plan (Contd.)
• Advantages:
Sales Force Compensation

• Flexible to reward and control salesforce activities


• Security for living costs and incentives for superior performance
for salespeople
• Rewards specific sales performance
• Different plans for different sales positions / jobs
• Disadvantages:
• Complex and difficult to administer
• May not achieve objectives if not properly planned,
implemented and understood
• Indirect payment plan, also called fringe benefits or perquisites,
help in attracting and retaining people, but have now come under
government tax in India
Non-Financial Plan

Indirect payment plan, also called fringe


Sales Force Compensation

benefits or perquisites, help in attracting and


retaining people, but have now come under
government tax in India

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