Compensating Sales Force

Topics: Sales, Sales management, Incentive Pages: 32 (6663 words) Published: August 27, 2013

Sales is one of the few jobs where you earn your money – every day.

Any type of sales organization can reward sales performance in three fundamental and interrelated ways: 1. Direct financial rewards.

2. Career advancement and personal development opportunities. 3. Nonfinancial compensation.

Why is it important?
• Sales activities are the life blood of most business • Most misunderstood aspects of running a business

• Tricky – right mix of salary and commissions
• Helps attract potential salespersons

• Sales compensation plan motivates the sales force which in turn drives the sales • Also a determinant of status and value

Why proper sales compensation ?
To manage human resources effectively Attract & motivate sales force To retain the sales force

Effective Sales Compensation Programme

Compliance with Corporate Strategy

• Connect individual with organization. • Influence work behavior. • Organizational choice. • Influence satisfaction. • Feedback.

• Reinforcement.

What does pay mean?
For the shareholder• All the costs the shareholder incurs to retain an employee(excluding the costs the employee needs to incur to run the business) For the employee • Salary • Benefits • Money or benefits to recognize performance • Money or benefits that help create ownership

The Equation…
Systems / Measures
Minimum Cost of people Delivering Value to Shareholder Maximum Performance Maximum Future Potential Solving the Pay Problem •Budgets and Industry, geographic benchmarks •Companies goals cascading to every employee •Capability and delivery consistency measurements

Equitable pay

•Organizations roles responsibilities and pay •Market Parity •Pay for measured and visible performance – differentiation is key – should extend to development and opportunity •Ways to create belonging and opportunity

Creating Value for the share holder

Necessary differentiated benefits Recognition Ownership

The basis for pay
One gets paid for… • Attitude + Behavior +Skills + Competencies • Performance • Potential Based on• Market parameters • Previous company pay • Value the position brings to the company and the value the company can derive out of the person occupying the position

Compensation / Total Rewards
Common example Reward elements Definition


Extrinsic – all things to which we can assign a rupee value

Determining the basis of pay
potential visible

Potential ability


Skills experience


Process Result

End Result

Performance evaluation


Aims of the Compensation policy
• To recognise the value of a job vis-à-vis all other jobs within the company. • To maintain external parity by maintaining balance with rates paid by similar companies (size, product, philosophy). • Ensuring stable earnings to deserving employees. • To provide individuals a reasonable and practical opportunity to reach their full earning potential. • To encourage employees to use their initiative and practice discretion. • To encourage work of high quality.

Effects of Pay Dissatisfaction
P a y Dasai n ist f c o s i t D ire fo e s r M Py o a re

Psychological Withdrawal Stress, Anxiety Poor Mental Health

Job Job Dissatisfaction


Individuals are satisfied with the rewards they receive in the following terms: • How much reward is actually received in relation to how much was expected to be received. • How the rewards received compare with what others received.

• Whether the rewards lead to other rewards.
• The level of extrinsic and intrinsic satisfaction from the rewards. • The value of different rewards.

Sales Force Compensation
• A well designed sales compensation program focuses on activities that support the company's business objectives, and, in turn, rewards the salespeople for their...
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