5f4c9Sales Force Compensation

Slide 2Amity Business School
“Sales is one of the few jobs where you earn your money – every day.”
Amity Business School
Compensation is more than money
Any type of sales organization can reward sales performance in three fundamental and interrelated ways:
1.Direct financial rewards.
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.
Purposes Of Compensation
Attaining monthly sales volume and sales on specific products (specific).
Market penetration and exploiting the territory’s potential (general).
Review Job Description
The first step is to reexamine the nature of the sales job. Up-to-date written job descriptions are the logical place to start. Revise in order the complete descriptions of the sales job objectives and work.
Management needs answers to four questions:
What compensation systems are being used?
What is the average compensation for similar positions?
How are other companies doing with their plans?
What are the pros and cons of departing from industry or community patterns?
A Sales compensation plan has four basic elements:
Fixed element-Straight Salary Plan, Drawing Accounts
Variable element- Commission , bonus
An element covering the fringe benefits
An element providing for reimbursement of expenses or payment of expense allowance.
Determine Compensation Level
Management weighs the worth of individual persons through estimating the sales and profit that would be lost if particular salespeople resigned.
Another consideration is the compensation amount of the company can afford to pay.
Management should encourage sales personnel to articulate their likes and dislikes about the current compensation plan and to suggest changes in it.
Test & Establish administrative process
Even the best compensation plan will crumble if it cannot be administrated.
The acid-test is to take actual sales performance from the prior year and compute the compensation impact with the new plan.
Implement the plan and Provide for Follow-up
The sales personnel are made to understand what management hopes to accomplish through the plan and how this is to be done ,provisions for follow-up are made.
STRAIGHT SALARY
Of all the compensation plans, the straight salary plan is the simplest: The salesperson is paid a specific amount at regular intervals.
Dominant market share in mature, stable industry
Highly defined and stable customer base
Strongly centralized and closely managed selling effort
Significant number of house accounts
Highly team-oriented sales effort
Service versus selling emphasis
Provides secure income
Makes salespeople willing to perform non selling activities
Helps increase customer loyalty
Disadvantages of the straight salary plan
No financial incentive to exert more effort& improve performance
Fixed salary a burden to new firms & non profitable companies
Leads to adequate but not superior performance
Straight Commission Plans
The straight commission plan is a complete incentive plan. If salespeople do not sell anything, they do not earn anything.
Paying salespeople according to the amount of their sales in given time period. Commission may be based on percentage of sales or on a sliding scale
Requires highly aggressive selling and minimal non selling tasks. Provides salespeople with maximum incentive but low financial security
The sales manager has to decide commission base, rate, start & payout
Gives strong financial incentive
Controls selling costs
Requires less supervision
Focus on getting sales rather long term customer relationships
Less control on the salesman for non selling activities
Little loyalty of salesperson
In the absence of a cap on the commission , at times the executive may draw a higher commission than their manager and therefore may not respond to directions of such managers
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 company uses independent contractors and part-timers.
Low barriers to entry into the job
Limited corporate cash resources
High risk reward sales force culture
Undefined market opportunity or customer base
Inability to set quotas or other performance criteria
Volume-oriented business strategy
Combination
A type of compensation plan in which a proportion of the pay is guaranteed and the rest is incentive to pay.
The salary constitute living wage and the incentive should allow the top performers to earn somewhere between 25 – 50% of their salary in incentives.
Most popular compensation method
Paying salespeople a fixed salary plus a commission or bonus based on sales volume
Provides financial security and some incentive
Contd.
Numerous types of combination salary plans exist. The more popular plans are:
Salary and commission
Salary, commission, and bonus: individual or group bonus
Flexibility to reward desirable activities of salespeople
Feeling of security
Allows rewards for frequent & specific sales behaviour
Different combination plans can be developed for diff. category of salespeople
Disadvantages of the combination plan
Plan is more complex & difficult to administer
May not achieve the desired objectives if not carefully planned & implemented
Established company with growth potential, many products, and active competition
Need to direct a complex set of behaviors
Need for a variable pay component that will ensure top performers are rewarded commensurately
To motivate the sales force.
To attract and hold good people.
To direct the sales force efforts in a profitable direction.
Sales contests are special sales programs offering salespeople incentives to achieve short-term work goals.
The past year’s sales.
The sales force’s forecast of the coming year’s sales.
Corporate marketing targets.
Geographic market potentials.
Consider Profitable Products
The profitable products can carry a higher commission or incentive reward.
The more profitable products can be weighted so one of them counts as much as two or three of the routine products.
Separate quotas can be set for each product line.
Salespeople can be paid on the basis of their individual contributions to profit.
Sales Force Expenses
Expense plans have the same basic objectives as a compensation system, that is, to motivate the salesperson’s behavior in terms of membership, performance, and attendance.
Fair for the salesperson.
Fair for the company.
Five basic classifications of salespeople’s benefits and services are:
Benefits that are required legally
Pension and retirement programs
Retirement Programs
Miscellaneous
Key questions in terms of the success of a plan:
Are the compensation objectives being met?
Is the firm able to attract new salespeople with this plan?
What is the relationship of compensation to turnover?

5f4c9Sales Force Compensation

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