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Sales Force Compensation

This document discusses sales force compensation. It defines sales force compensation and explains the various methods used, including salary, commission, bonuses, fringe benefits, and reimbursed expenses. It also discusses how to choose the best compensation plan based on factors like the type of salesperson, product, and desired salesperson behavior. Successful sales managers re-evaluate compensation plans annually to ensure they still motivate the sales force and reflect any business changes.

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Loveleen Santosh
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© Attribution Non-Commercial (BY-NC)
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152 views

Sales Force Compensation

This document discusses sales force compensation. It defines sales force compensation and explains the various methods used, including salary, commission, bonuses, fringe benefits, and reimbursed expenses. It also discusses how to choose the best compensation plan based on factors like the type of salesperson, product, and desired salesperson behavior. Successful sales managers re-evaluate compensation plans annually to ensure they still motivate the sales force and reflect any business changes.

Uploaded by

Loveleen Santosh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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SALES FORCE COMPENSATION

Loveleen Santosh
OBJECTIVES
 At the end of this unit, you will be able to
 Define sales force compensation
 Explain the various methods of compensation
 Understand how to choose the best compensation for the
sales force
SALES FORCE COMPENSATION
 Sales Force Compensation involves deciding how much
successful salespeople should earn and the portion of the
total that should be fixed versus performance pay
 Total compensation depends on the complexity of the
salesperson selling tasks
 The mix between fixed and performance pay depends on
 Balancing salesperson and company needs
 Type of salesperson you wish to attract
 Salesperson influence on sales
 Type of product / service sold
 Rewarding the salesperson specific actions / results most
important to the company’s success
SALES FORCE COMPENSATION
(CONTD…)
 Sales force compensation involves
 Salary
 Commission
 Bonus
 Fringe
benefits
 Reimbursed expenses

 Sales force compensation plan communicates to


salespeople where management wants them to focus
 Compensation plan may not change salespeople’s behaviour
 A good compensation plan loses its effectiveness when
applied to weak or badly trained sales force
SALES FORCE COMPENSATION
(CONTD…)
 Some managers abdicate their sales management responsibility by
rationalizing that compensation system will direct all salespeople’s
behaviour
 Ultimate example – companies that compensate on 100% performance pay
 Successful sales managers re-evaluate the sales force compensation
every year
 Questions to be asked
 “If you were totally reconstruct the compensation program, would it look the
same?”
 “In the last year, how have your products, customers, competitors, technology,

salespeople, strategy and prices changed?”


 “Does the compensation program reflect the changes?”

 Increasing compensation for a new product or revenue growth and


decreasing it on matured products or previous revenue are acceptable
adjustments
 Making a change and then reverting back will be difficult – like putting
toothpaste back into the tube
SALES FORCE COMPENSATION - TYPES
 Total pay package of salespeople = Direct compensation + Fringe
benefits + Reimbursed expenses
 Direct Compensation = Fixed Pay (salary) + Performance Pay
(commission) + Deferred Performance Pay (Bonus)
 Fringe Benefits range from
 Mandatory
 Social security
 Medicare

 Unemployment insurance

 Optional
 Profit sharing
 Stock options

 Tuition Reimbursement

 Reimbursed expenses range from


 Employers sharing a portion of the salesperson’s costs
 Complete reimbursement on all travel, entertainment, communication and
office expenses
SALES FORCE COMPENSATION
(CONTD…)
 Salary Plans versus Commission Plans
 Salary
 Fixed amount of pay per period regardless of the recent activities or results
 When results exceed or fall short of expectations, salary is adjusted but not

immediately
 Benefits

 Payments are the same for each period, so easy to administer

 Direct selling expenses remain fixed regardless of volume

 The exact amount required for salespeople compensation is known beforehand

 Emphasizes the importance of non-selling activities and encourages the

salesperson to engage in these activities (like after-sales service)


 Commission
 Provides an immediate reward for successful performance
 If sales increases, salespeople make more money. If sales decreases, salespeople

make less money.


 Commission provides the sales force with an incentive to work hard and earn a

great deal of money


 Only time, energy and territory constraints limit the salesperson’s compensation
SALES FORCE COMPENSATION
(CONTD…)
 Bonuses
 Excellent means of using performance pay to reward positive action
and superior results
 Provides an extra, deferred reward for some form of outstanding
performance over and above the forecast or goal
 Bonuses increase as salespeople exceed goals

 Combination Plans
 Combination of salary, commission and bonus – widely used form
of sales compensation
 Combination plans can be targeted to
 Encourage the specific behaviour or action that results in an increase in sales
 Eliminate the disadvantage of straight commission or straight salary

 Lack the simplicity of a straight commission or straight salary plans


 Difficult for the company to administer and the salespeople to understand
 Because of the complexity, the plan can require more frequent revision than

either straight salary or straight commission


SALES FORCE COMPENSATION
(CONTD…)
 Expenses Reimbursement
 Expense Reimbursement Plan must be
 Fair
 Controllable

 Fast

 Simple

 Easy to understand and administer

 Flexible

 Salespeople should have an economic incentive for controlling


their expenses and for using money productively and efficiently
 If no economic incentives exist, then salespeople can use them as
additional form of compensation
 Management cannot ask its salespeople to pay for expenses
 Total compensation would be lowered to unacceptable level
SALES FORCE COMPENSATION
(CONTD…)
 Fringe Benefits
 Includes mandatory items and optional items
 Varies between 15 to 40 percent of direct compensation
 Channel partners (distributors, brokers and independent sales
representatives) pay their own fringe benefits
 Some companies offer salespeople a choice of fringe benefits
and plans
 Retirement plans, profit sharing and stock options are
deferred fringe benefits (increase in value based on years of
employment)
SALES FORCE COMPENSATION
(CONTD…)
 Individual written expense plans
 Eachsales person should receive, sign and return their annual
compensation plan
 Prevents misunderstandings
 Allows the sales manager and salesperson to discuss the total annual

cost
 Allows a sales manager the opportunity to discuss with his or
her salesperson their total cost
CONCLUSION
 Now you will be able to
 Define sales force compensation
 Explain the various methods of compensation
 Understand how to choose the best compensation for the
sales force

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