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This document discusses compensation plans for sales forces. It outlines objectives of effective compensation plans such as attracting and retaining quality salespeople. Key types of compensation discussed are financial plans like straight salary, commission, and bonus plans as well as non-financial incentives. The document also examines factors that influence compensation plan selection and the process for designing a plan that balances both short and long-term sales force and company objectives.
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- 2. Objectives: Attract quality salespeople Optimization of sales efforts Helps in retaining quality manpower Helps in establishing good rapport between sales force and sales manager
- 3. Characteristics of anEffective Compensation Plan System should address both long term and short term objectives It should guarantee a fair wage It should reflect a stream of stable income It should be based on the principle of equity and equality It should reflect the progress as an individual It should economical to the company
- 4. Factors Influencing Financialability of the firm Companies choice of Pull or Push strategy Nature of Product Individual’s education and Qualification Work experience Selling ability
- 5. Types of CompensationPlans Financial compensation Non-financial Compensation 1. Straight salary plan Straight commission plan Bonus and Incentives Salary plus incentive plan Drawing account and Commission plan Allied methods 1. Promotions Recognition Programs Fringe benefit Expense account Perks Sales contests 2. 3. 4. 5. 6. 2. 3. 4. 5. 6.
- 6. Process of DesigningCompensation Plan Determine sales force and compensation objectives Determine major compensation issues Implement long-term and short-term compensation plan Relate rewards to the performance
- 7. Straight Salary Plan Easiest and simplest method of compensation Fixed salary structure Applicable to B-to-B business Straight salary may be: - Fixed payment in regular intervals - Salary and increment plan - Salary and allowances plan
- 8. Where it canbe applicable Majority of the time spent on non-selling activities Used when job is routine Used when extensive missionary and educational selling is there Used when sales job require lengthy presale and postsale services and negotiation When company operates with dominant market share and market is quit mature Used when customer base is highly defined and stable Used when highly team oriented efforts are there
- 9. Advantages Stable andregular flow of income Stimulate higher morale and spirit amongst sales staff Simple to manage and design Sales manager has strong financial control
- 10. Disadvantages Lack ofmotivation Higher burden of controlling sales staff Does not push the product aggressively in the market May increase turnover Risk of shifting focus from long term relationship to just making sales Encourages excessive selling expenses during business downswings
- 11. Straight commission plan Compensation is directly linked with performance Also called risk compensation plan Commission is directly related with sales volume
- 12. Execution of straightcommission plan Executed in two ways: 1. Flat rate: People are paid flat rate commission irrespective of level of quota achievement 2. Straight rate Used when management wants aggressive sales promotions
- 13. Advantages Provide optimumdirect monetary incentive Sales manager can easily control the sales force Easy to forecast future profit and revenues from historical data Invites stronger sales efforts Fair method where rewards are linked to one’s performance not with company policy
- 14. Disadvantages Does notassure an assured income for the sales people Lacks loyalty to the organization Sales people pressurize customers to achieve targets Sales people will concentrate on easy-to-sale item rather than hard to sale When negative turn for the industry possibility of demotivation of sales staff.
- 15. Salary plus incentiveplan (Combination Plan) Part of income is given as straight salary and a variable portion is given in the form of incentive Major part of the compensation comes from fixed salary plus incentive plus bonuses.
- 16. Advantages Salespeople willget fixed income as well as incentives Better control and tool of motivation Lesser demand for change in territories and higher remuneration
- 17. Disadvantages High administrativeand operating cost It has high risk of comprehension and frustration at the end of financial year
- 18. Allied methods Profit-sharingplan Special Remuneration plan Expense allowance plan Quota based compensation
- 19. Non-financial Compensation 1. 2. 3. 4. 5. 6. Promotions Recognition Programs Fringebenefit Expense account Perks Sales contests