methods of sales force compensation

Sales management

1. Presentation on topic :- methods of sales force compensation Presented by :- Sangeeta Saini M.Com (final) 671

2. Meaning of compensating sales force Compensating sales force means giving monetary and non monetary benefits in return for the services rendered by sales force. The basic sales force compensation elements are salary , commission , bonus, fringe benefits or any combination of these.

3. Definition of compensating sales force “ A sound sales compensation plan must have three elements: Attract skilled and well- motivated sales personnel towards organisation. Motivate sales persons. Retain efficient sales persons in the organisation.” According to Phillip Kotler

4. Methods of sales force compensation Straight salary method :- This is simplest compensation plan in which salesman receive fixed salary at regular interval of time . Generally , salary is paid to sales force according to salary grade approved at the time of appointment . Under this grade , generally sales force continue to get annual increments and are paid other allowances like dearness allowance ,meals allowance, travelling allowance , medical allowance.

5. Straight salary method Merits Provides maximum security and stability of earnings to the salesman. Easy to understand and it involves less calculations. Salesmen and management know about the amount of salary in advance so both can plan their financial activities for future easily. Demerits This method provides no incentives to sales personnel. It lacks motivational effects. It does not distinguish between efficient and inefficient salesman as both get fixed salary. In this compensation plan, close supervision of sales force is required.

6. 2. Commission method In this remuneration plan , sales force is paid according to their performance, efficiency and productivity. This plan pay fixed or floating rate of commission on the sales volume achieved by the salesman. Commission can be paid on the basis of sales volume, sales value ,profits ,collections , order size etc. If sales level achieved by a salesman is high , then he will paid more commission ; and if sales level achieved is low , then he will be paid less.

7. Commission method

8. Commission method Merits Compensation is linked with productivity and efficiency , hence it is motivational in nature. It requires less supervision of sales force. Efficient salesmen are attracted to such sales organisation. demerits There is no secured income to salesman. From the various basis for computing commission such as sales volume , sales value , net profits etc. , it is difficult to decide the basis for calculating commission.

9. 3. Salary plus commission method Some firms combine salary and commission plans . This plan is designed to avail the advantages and remove the disadvantages of both salary plan and commission plan. Salary plus commission method may take any of the following two forms:- Salary + commission on total sales In this method , the commission is paid on total sales affected by the salesmen. Salary +commission on sales over and above the quota In this , a minimum quota is fixed for each salesmen. No commission is paid until the salesmen crosses this sales quota. So the salesmen will be entitled to commission only on sales over and above sales quota fixed for him.

10. 4. Bonus is an additional financial reward to the sales force for achieving results beyond a predetermined level. Bonus plan can be attached either with salary and commission plans. It is paid in addition to normal remuneration as a reward for better performance . Bonus is never used alone . Bonus is not a continuing liability to the mgt. It is given for achieving sales quota, performing extra selling activities, for reducing selling expenses, for attracting new customers, selling particular products above a specific level etc.

11. Merits It motivates the sales force to do extra work. It is not a regular or continuing burden on the organisation. Demerits When Bonus is given to team, it does not differentiate between efficient and inefficient performers. The method of calculating bonus is complex and every salesman cannot understand it.

12. 5. Fringe benefits include retirement benefits, pension plans, paid leave, study leave, maternity leave, car facility, medical facilities, etc. Fringe benefits are given to all employees working at the same level, and these do not vary with their job performance. Fringe benefits helps to increase job satisfaction, and prevent job dissatisfaction .

13. Types of fringe benefits Statutory Payments: It refers to compulsory payment under central or state government laws such as provident fund, pension-plans etc. Labour welfare schemes: It includes group insurance , reimbursement of medical expenses, facility of free transportation , free education to children, canteen facilities etc. Benefits related to leave: Like study leave , maternity leave , other leave etc. Other benefits : Like free club membership, gift on various occasions , providing mobile phones , laptop etc.

14. Under this method, if some additional task is assigned to sales persons which is different from his routine task, then some additional remuneration is given to sales persons as they feel honoured when the assigns them some additional task. They feel that company has recognized their skills and thus given them additional task. 6. Additional Task Method:

15. At the end, we can conclude that no single method of compensating salesman is suitable for all organisations. The suitability of method varies from business to business . It is a common belief that salary plus commission method is best of all other methods. It guarantees minimum remuneration along with incentives for higher efficiency. It has benefits of both salary and commission method. Hence salary + commission method is the best of all the methods.