a comprehensive package on the compensation of the sales force.

1. Compensation of sales force
D.K.Singh
MBA,NET,Ph.D
Mob.7870701208
Email:drdksingh@gmail.com

2. compensation
 Any cash or kind offered for the contribution made
towards the achievement of the objective.
 Reward for the service~remuneration
 to ensure both the financial security & motivation

3. Compensation vs remuneration
• Compensation refers to monetary
payments eg. Salary and wages
• Remuneration refers to both monetary and
non-monetary payments eg.
Commissions Bonuses. Vacation, sick,
and personal days. Payment of an
employee's work-related travel expenses.

4. Types of compensation plans
1.Straight salary- a fixed sum of money at
regular intervals irrespective of the turnover .
-regular increments
- financial security
-non selling tasks
-no direct monetary incentive

5. 2.Straight commission- a fixed % of the total sales vol
effected during a period of time
provide direct monetary incentive
*The Sp to pay the expenses
Co. pays the expenses in advance
reimburses

6. Forms of st. commission
1.Sliding commission-rate of commission increases with
the increase in sales vol.
a)Progressive com.- rate increases more than
proportionately, ie.
sales up to 50,000 (com=5%),
50,000-1,00,000(6%)
above 1,00,000(7.5%)
b)Regressive com – rate subseuent decreases more than
proportionately,ie7.5%6%5%
2.Differential commission-difft rate of com are fixed for
difft pdts/custs/ seasons
to counteract the tendency to push the easiest to sell,
low margin items, higher com is given for selling pdts
of high gross profitability

7. 3.Combination of salary& incentive plan:
1.Salary plus commission-security of a stable
income+incentive for better perfo
Fixed +Variable=60:40 or 80:20
Types
i)Salary plus com on total sales
ii)Salary plus com over quota sale

8. 4.Fringe benefits (allowance) financial but indirect
rewards paid to an employee that have no direct
relationship to job perfo
It’s a wage supplement-non motivating
Eg.paid vacation,
medical,disability & death,
maternity leave(leave with pay)
social securiy-retirement benefits,PF, Pension,-range
from 25-40% of the package, gratuity, group
insurance, ESI,HRA,CCA
Cafeteria approach to FB: employees are given the
option to select the benefits that best fit their
requirement

9. 4.Bonus:incentive for achieving growth in biz
payment made at the discretion of the mgt
A reward to one and all .
An incentive in addition to the the basic
compensation plan ie. salary &com
The bases to consider-excess of quota
sales,profitability of the pdt rather than the sales vol
alone,no. of new a/c opened, perfo on certain types
of promo, reducing selling expenses, collectIon of
amounts from customer

10. • Perquisites are fringe benefits that are received
over and above an employee’s salary. These
perquisites can be taxable or non-taxable
nature. There are a number of benefits which
an individual’s salary and are grouped under
perks.
• These components are taxed separately from the
account so as to maintain transparency and
Amenities that are made available to employees
are included in perquisites and are subject to
rules and conditions as prescribed.

11. • What is an Allowance?
• An allowance is a financial benefit given to the
employee by the employer over and above the regular
salary. These benefits are provided to cover expenses
that may be incurred to facilitate the discharge of
service for example Conveyance Allowance is paid to
foot expenses incurred for commuting to the
workplace. Some of these allowances are taxable under
under the head Salaries. A few of them again could be
partly taxable and few others are non-taxable or fully
exempt from taxes.

12. .
• Taxable Allowances
1. Dearness Allowance: Dearness Allowance (DA) is an allowance paid to
employees as a cost of living adjustment allowance paid to the employees to
cope with inflation. DA paid to employees is fully taxable with salary.
The Income Tax Act mandates that tax liability for DA along with salary must be
declared in the filed return.
2. Entertainment Allowance: Employees are allowed the lowest of the declared
amount one-fifth of basic salary, actual amount received as allowance or Rs.
5,000. This is an allowance provided to employees to reimburse the expenses
incurred on the hospitality of customers. However, Government employees can
can claim exemption in the manner provided in section 16 (ii). All other
employees have to pay tax on it.
3. Overtime Allowance: Employers may provide an overtime allowance to
employees working over and above the regular work hours. This is called
overtime and any allowance received for this is fully taxable.
4. City Compensatory Allowance: City Compensatory Allowance is paid to
employees in an urban centre which may be highly expensive and to cope with
the inflated living costs in the cities. This allowance is fully taxable.
• Income Tax Calculato
•

13. contd..
5. Interim Allowance: When an employer gives any Interim Allowance in
lieu of final allowance, this becomes fully taxable.
6. Project Allowance: When an employer provides an allowance to
employees to meet project expenses, this is also fully taxable.
7. Tiffin/Meals Allowance: Sometimes employers may provide
Tiffin/Meals Allowance to the employees. This is fully taxable.
8. Cash Allowance: When the employer provides a cash allowance like
marriage allowance, bereavement allowance or holiday allowance, it
becomes fully taxable.
9. Non-Practicing Allowance: When physicians are attached to Clinical
Centers of the various Laboratories/Institutes, any non-practicing
allowance paid to them become fully taxable.
10. Warden Allowance: When an employer pays an allowance to an
employee working as a Warden i.e. Keeper in an educational Institute,
the allowance received is fully taxable.
11. Servant Allowance: When an employer pays an employee to engage
services of a servant, such an allowance is taxable.

14. .
• Partly Taxable Allowances
1. House Rent Allowance (HRA): When an employer pays an allowance for the
employees accommodation it is called House Rent Allowance. Tax
exemption under section 10 (13A) can be claimed on whichever amount is
lower of the three:HRA as per actuals received by the employee
1. Rent paid as per actuals less 10% of Basic Salary
2. In Metros i.e Delhi, Mumbai, Chennai or Kolkata, as much as 50% of basic salary
salary or else 40% of it if the accommodation is in a non-metro.Any amount of
House Rent Allowance received after claiming such deduction is taxable.
2. Fixed Medical Allowance: This is an allowance paid by the employer when
the employee or any of his family members fall sick for the cost incurred on
on their treatment. If any such reimbursement exceeds Rs.15,000 per year;
year; the same is taxable.
3. Special Allowance: A special allowance paid to employees is covered under
section 14(i) and does not fall within the purview of a perquisite. It is
essentially for performance of a duty is partly taxable

15. .
• Non-Taxable Allowances
• Some of the allowances, usually paid to Government
servants, judges and employees of UNO are not taxable.
These are:
1. Allowances paid to Govt. servants abroad: When servants of
Government of India are paid an allowance while serving
abroad, such income is fully exempt from taxes.
2. Sumptuary allowances: Sumptuary allowances paid to judges
of HC and SC are not taxed.
3. Allowance paid by UNO: Allowances received by employees
of UNO are fully exempt from tax.
4. Compensatory allowance paid to judges: When a judge
receives compensatory allowance, it is not taxable.

16. difference between the allowance
and the perquisite
• in the case of allowance, money is
received by the employee in his hands and
then they are spent, whereas on the other
hand in the case of perquisites, a benefit is
received which cannot be spent as it is not
in monetary form.

17. • Allowance refers to the financial benefit
which an employer provides to employees
in addition to the basic salary they draw,
so as to meet the expenses that
employees may incur to perform the job
or because of it.
Conversely, perquisites refer to a financial
benefit which an employer provides to an
employee because of their job or the
designation they hold.

18. .
Meaning Allowance implies
the amount paid by
an employer to the
employees for
meeting certain
special expenses,
i.e. discharging
official duties or to
meet personal
expenses.
Perquisite refers to a
facility, provided to
the employee apart
from their salary or
allowance, owing to
his/her designation
or length of service.

19. Features of a sound compensation plan
1.simplicity-easy for the Sp to understand
2.fair-equity in remunerayion,equal pay same work/perfo
3.Guranteed income-to safeguard against
uncertainities.provides a living wage
4.incentive-better remuneration for the performers
5.flexibility-adjusts to changing times/changes in perfo
6.competitive-at par with competitors if not better
7.Fits with the rest of the motivational prog
8.Economical to administer-cost within manageable
limits
9.Help to achieve objectives-generate revenue that more
than offset the cost,higher revenue&lower selling cost
10.control-be able to detect the improper
misappropriations

20. Devpg a sales compensation plan
• 1.analyse job description
• 2.consider the co’s general compensation structure(job
evaluation)
• 3.consider compensation pattern in the industry
• 4.amt the co could afford to offer
• 5.provide for difft elements of compensation-a)fixed
b)variable c)allowance d)reimbursements e)bonus
• 6.Pilot test- consult the sales force with a tentative plan to
devp insight
• 7.Pre test-sales rep of several territories are asked to reflect
upon the finalized plan to eliminate inconsistencies &shoot
the trouble spots
• 8.implement
• 9.follow up-review & revise/ periodic audit