Incentive as a Component of Salesman Compensation Structure
Incentives as a Component of Salesman Compensation Structure
By
Mohit Pandey
11DM-187
Sales Management-Section D
What are Incentives?
It is defined as a type of additional remuneration either in cash or kind given to an employee as a means of increasing output or as a motivational influence.
Why do we need to give incentives?
Firstly incentives work as psychological stimulant for a person to perform better. Incentives act like the pot of gold at the end of the rainbow. Secondly, the turnover rate of a salesperson is very high and also the cost of replacing a salesperson is also quite high, approximately around $40-50k. Thus to retain the best talent in the company we need to provide adequate incentives to the sales force.
The salesperson spends most of his time out in the field and this makes it quite difficult to monitor him. Incentives act as an automatic monitor to make sure that the salesperson is working towards achieving his sales targets.
What are the types of Incentives given to a Salesman?
The salesman compensation structure is divided into two parts: Fixed Salary and Variable Salary.
In a totally risk-free situation there would be no fixed salary, the salesman compensation would consist only of 100% Commissions. But since the market is never 100% risk-free and also because of longer order-cycles the compensation plan has some amount as Fixed Salary.
The types of Incentives are: * Cash: This is most widely given type of incentive. Everyone knows that the major lure in a salesman’s job is the opportunity to earn a lot of money and cash incentives are a major component. Cash incentives can be segregated into two sub-types:
* Commissions: It is directly to the sales volume. Example: 5% commission on every T.V sold. It can either be calculated on the profit margin or on the price of the product. Commission are short-term incentives and lead to increase in the sales effort put in by the salesman.
* Bonus: It is given
By
Mohit Pandey
11DM-187
Sales Management-Section D
What are Incentives?
It is defined as a type of additional remuneration either in cash or kind given to an employee as a means of increasing output or as a motivational influence.
Why do we need to give incentives?
Firstly incentives work as psychological stimulant for a person to perform better. Incentives act like the pot of gold at the end of the rainbow. Secondly, the turnover rate of a salesperson is very high and also the cost of replacing a salesperson is also quite high, approximately around $40-50k. Thus to retain the best talent in the company we need to provide adequate incentives to the sales force.
The salesperson spends most of his time out in the field and this makes it quite difficult to monitor him. Incentives act as an automatic monitor to make sure that the salesperson is working towards achieving his sales targets.
What are the types of Incentives given to a Salesman?
The salesman compensation structure is divided into two parts: Fixed Salary and Variable Salary.
In a totally risk-free situation there would be no fixed salary, the salesman compensation would consist only of 100% Commissions. But since the market is never 100% risk-free and also because of longer order-cycles the compensation plan has some amount as Fixed Salary.
The types of Incentives are: * Cash: This is most widely given type of incentive. Everyone knows that the major lure in a salesman’s job is the opportunity to earn a lot of money and cash incentives are a major component. Cash incentives can be segregated into two sub-types:
* Commissions: It is directly to the sales volume. Example: 5% commission on every T.V sold. It can either be calculated on the profit margin or on the price of the product. Commission are short-term incentives and lead to increase in the sales effort put in by the salesman.
* Bonus: It is given
Bibliography: Restoring Balance to Sales Compensation Head, Robert G. Sales and Marketing Management144. 9 (Aug 1992): 48. Readers ' report: How we use incentives Donath, Bob. Sales and Marketing Management145. 6 (Jun 1993): 34. Talking money Anonymous. Sales and Marketing Management149. 12 (Nov 1997): 64-70. May the Sales Force Be with You Ladd, Scott. HRMagazine55. 9 (Sep 2010): 105-107. Reframing salesforce compensation systems: An agency theory-based performance management perspective Bartol, Kathryn M. The Journal of Personal Selling & Sales Management19. 3 (Summer 1999): 1-16.