Compensating Sales Personnel

in Industry

“Creating effective sales compensation plans is part art and

part science. One size doesn't fit all, but should emerge from
a disciplined process and lots of dialogue between
management and the sales team.”- Judith Cone

Priyabrata Banerjee 10Ex-036

Rajesh Gupta 10Ex-039
Sankha Mandal 10Ex-044
Udai singh 10Ex-057
Sales Compensation Plan
Sales compensation is a crucial factor in motivation. It is the sales
executive’s best strategic tool to drive sales performance and motivate
specific selling behaviors.

When designing sales compensation plans, one of the most important

steps is to

 Identify the appropriate measures on which your sales representatives will be paid.
 A combination of salary, commission and bonus is usually most
effective.

The question then becomes how to successfully blend all three that will
entice achievers, as well as reward them according to performance.
Nevertheless, the plan needs to be kept as simple as possible.
 Total compensation depends on the complexity of the sales person’s selling tasks.
The mix between performance and fixed pay depends on:
I. Balancing salesperson and company needs;
II. The type of salesperson you want to attract;
III. The salesperson’s influence on the sale;
IV. The type of product or service sold; and
V. Rewarding the salesperson’s specific actions or results most important to the
company’s success.

 Sales force compensation involves not merely salary, commission and bonus but also
fringe benefits and reimbursed expenses – though these last two are considered
non-compensatory since they are not influenced by sales results.

 An ideal compensation plan should:

a. -        Reward positive action and superior results important to the success of
your company
b. -        The mix between fixed and performance pay should reflect the type
salesperson you wish to attract and the salesperson’s influence on the sales;
c. -        The total level of compensation ought to reflect the complexity of the
sale.
Essentials of a sales compensation plan

 Secure income
 Integrating with motivational programs
 Parity and clarity-equal pay for equal performance
 Understandability

 Flexibility

 In line with goals and objectives of the organization.

Types of Sales Compensation Plan

 Straight Salary Plan

 Commission Only Plan

 Salary cum Commission Plan

 Bonus Plan

 Sales Incentive Plan

Constructing a Compensation Plan
 DIRECT COMPENSATION consists of:
-        Fixed pay (salary)
-        Performance pay (commission)
-        Deferred performance pay (bonus)
-        Fringe benefits (Social security/insurance, group insurance, optional

profit sharing etc.)

-        Reimbursed expenses
 Balancing the company’s and salespeople’s needs
 The type of salesperson you want to attract
 The salesperson’s influence on the sale
 The type of product or service sold
 Rewarding the salesperson’s specific actions or results most important to
the company’s success
Structure of Sales Force

Zonal
L3 Manager

Regional Regional
L4
Manager Manager

Area Area Area

Manager L5 Manager Manager

Territory/ Territory/ Territory / Territory/

District
Managers
L6 District
Managers
District
Managers
District
Managers

Sales Sales Sales Sales Sales

UnderAssistants
Assistants distributor
Assistants Assistants Assistants
Defining the role of hierarchy
Zonal Manager- A zone like East, West, South and North

Regional Manager- A Region comprises one or two States-managing

Area managers, Logistics

Area Manager- An area comprises two to five districts, depending upon

business turn over, more than 12 crore business-managing territory
managers,

Territory Manager- one or two districts, normally up to 7-8 crore

business –managing distributors and retailers

Sales assistant- allotted according to distributors, mainly for promotion,

service and retailer interaction.
 Industry Norms

Seniority/Job Company Policy

roles

Compensation
Pay structure(sales assistants)
Salary
+ Commission
= Total Pay

0.5% -2% on the

Rs 3500-4000
sales depending on
pm
product

Particular Reimbursement
Travelling Exp (In territory) Rs 2.25/km
Bhatta( more than 8 hr outside Rs40
headquarter/more than 100
km)
Outstation Hotel Rs400
Outstation Bhatta Rs 75/Day
Hierarchy of needs vs. compensation
packages Sel
f-
act L2 and
uali above
zati
on
Esteemed L3,L4

Social L5

Safety and security

L6

Psychological
 Pay Structure- Sales Executives and
Managers

= +
Salary/Drawing Reimbursement
Total pay of Expanses
amount

+
Fringe benefits

+
Special Schemes
+ Variable
Component
Salary Structure for L4,L5 and L6
Salary as per company payroll and level
Annexure

Level-
  MONTHLY ANNUAL - CTC
BASIC(P.A.) (A)
 
ALLOWANCES/REIMBURSEMENTS
 1.D.A
2.HOUSE RENT ALLOWANCE
3.CONVEYANCE ALLOWANCE
4.LTA
5.EDUCATION ALLOWANCE
6.MEDICAL REIMBURSEMENT
7.SPECIAL ALLOWANCE
TOTAL (B)
 
RETIREMENT BENEFITS
1. PF
2. GRATUITY
TOTAL (C)
 
INSURANCE (D)
 
*PERFORMANCE PAY @ Rating
 Group Health Insurance (F)
TOTAL COST (A+B+C-A6)
Performance pay

Performance L4,L5 L6
grade @ KRA
A+ 100% 100%
A 85% 85%
A- 70% 70%
B+ 50% 50%
B 40% 40%
Reimbursement Structure for L4,L5
and L6

Particulars Reimbursement
Travelling Exp (In Territory) Rs 2.25per km(by bike)/rs6 per
km(by car)/by Actual(producing
of tickets)
Daily Allowances( more than 8 hr Rs 120/day
outside headquarter/more than
100 km)
Outstation Hotel(night stay) 1000( for C grade towns)
Outstation Allowances(night stay) Rs 250/day
Office stationaries/couriers/post Actual(producing of Bill)
Fares Actual (producing of bill)
How to develop effective sales
compensation plan?
Pay attention to developing a sales
compensation plan that:
 Takes into account the profitability of your
company’s various products and services, and
 Motivates desired sales behaviors
These are the twin cores of any truly effective
sales compensation plan!
Steps in sales compensation plan
development
Define the sales role
◦ Should direct the salespersons contribution to
company’s overall marketing effort.
◦ The sales role includes what the salesperson
does, to whom, how, and how much - in sum,
how the salesperson “makes the difference”
◦ sales data by markets and by products should be
analyzed for background information to aid the
role-definition process.
Study the competetion
◦ What companies’ sales jobs - regardless of products
sold - are equivalent to our own?
◦ In which companies do salespeople have similar
responsibilities, need similar intellectual and
persuasive skills, and have a similar amount of
influence on product placement and specification and
on the buying decision?
Determine the competetive pay package
◦ Other sales compensation data can be gleaned
from published survey reports, as well as from
occasional articles in the business press.
◦ determine the overall pay range offered by the
competition.
Relate external data to internal policy
◦ it should be segmented according to the number of
categories in the company’s own sales force.
◦ management should decide where it wants to
position the company along the competitive pay scale
Select a Target Salary/Incentive Mix
◦ What’s needed is a salary high enough to attract
talent and an incentive sufficient to motivate.
◦ The mix is usually influenced by the barrier-to-entry
concept- that is the higher the technical expertise,
education or industry experience demanded, the
larger the portion of total pay that should be
provided by base salary.
Designing the incentive process
the form of the incentive,-salespersons importance and
market characteristics dictate the form.
it’s threshold for activation- no simple formulae is there
depends upon the organizational objective. the idea is to
stop or minimize windfalls without discouraging extra
effort.
 its limits or restrictions-the sales compensation plan
should be responsive to differences in product lines,
market segments, and geography
the salary/incentive mix,
the incentive period- the proper length if it fits the natural rhythm of the
particular business. The period must be short enough for quick impact, yet long
enough to make each payment significant-not just a tip.
 the performance measures
The performance measures
 Overall territory volume.
 Segmented volume (key accounts or major products).
 Market share.
 Product placements.
 Number of new accounts.
 Product mix.
 Gross profit.
 Pricing (based on an absolute or peer-ranking percentage of list-price
attainment).
 Consistency of sales results (by time frame).
 Bad debt/returned goods.
 A team-based result.
 Training activities. -
 Expense control.
Design a commission plan that drives
sales - Sales Commissions
 Startwith outcomes and behavior want to foster
 Prioritize behaviors;
 Keep the incentives flexible so that they can
evolve along with your company's goals;
 Make the compensation plan easy for everyone
to understand;
 Benchmark your competition to stay
competitive; and
 Review regularly for relevance
Process of designing an incentive plan
 Start with results.
 Some carrots are larger than other- what is appropriate
for what people, prioritize the behaviour and develop
systems of rewards that encourages top priority
behaviour.
 Keep it simple and understandable.
 Know your competetion.
 Make the structure
 Equality of pay.
 First time vs. recurring sales
 Timing of commission payment.
“In designing the incentive component of
the compensation plan, a company should
always keep in mind the win-win goal:
Only if winning behavior is in line with
corporate objectives will the company
win when the salesperson does.”

Thank you