Basic Types of Compensation Plans Fundamentally there are only three widely

Basic types of compensation plans fundamentally there

  • Essay
  • mostafadiesel48
  • 13
  • 100% (1) 1 out of 1 people found this document helpful

This preview shows page 6 - 8 out of 13 pages.

Basic Types of Compensation Plans Fundamentally, there are onlythreewidely used methods of compensating a sales force: 1- A straight salarya fixed element related to a unit of timeduring which the salesperson is working. 2- A straight commissiona variableelement related to the performanceof a specific unit of work. 3- Some combinationof compensation elements. In recent years, there has been significant growth in plans that combine salary with an incentive feature. This trend has been primarily at the expense of straight salary and straight commission plans. The current trend is to make the pay-for-performanceincentive a bigger part of the pay mix. Emphasis Shifting to Solutions Selling, Customer Satisfaction, andDeveloping Long-Term Relationships with CustomersTraditionally, sales compensation plans have been geared to generate sales volume and more recently profits. Today, however, there has been a shift away from sales volume and high margins toward developing strong relationships with customers by providing them with comprehensive solutions to their problems. As noted in earlier chapters, the salesperson becomes more of a consultant than a transactional seller. Many companies are setting 10 to 25 percent of incentive pay on developing these long-term customer relationships. These firms realize that sales volume alone is a poor indicatorof a salesperson’s value to the firm. a. Straight Salary Plans A salary is a directmonetary reward paid for performing certain duties over a period of time. The amount of payment is related to a unit of timerather than to the work accomplished. A salary is a fixedelement in a pay plan. That is, in each pay period, the same amount of money is paid to a sales rep, regardless of that person’s sales, missionary efforts, or other measures of productivity. Figure 9-4
Background image
7 Strengths of Straight Salary Plans A regular income gives the salesperson a considerable degree of security. A salary plan also provides stability of earnings, without the wide fluctuations often found in commission plans. The assurance of a regular, stable income can do much to develop loyal, well-satisfied salespeople. Sales forces on straight salary usually have lower turnover rates than those on commission. Also, management can direct the sales force into various activities including non-selling actsmore easily under a salary plan than under any other method of compensation. Because people on salary are less likely to be concerned with immediate sales volume, they can give proper consideration to the customers’ interest. Also, customers often react more favorably to a salesperson if they know he or she is on straight salary. Limitations of Straight Salary A frequent objection to the straight salary plan is that it provides no direct incentiveto the sales force. True, a salary plan does not offer the strongdirect incentive that a commission or bonus plan does.
Background image
Image of page 8

You've reached the end of your free preview.

Want to read all 13 pages?

  • Winter '16
  • Ahmed Basouny
  • Sales, Sales Management, Management Of A Sales Force, Spiro Sales Book, Management Of A Sales Spiro, 12th Edition By Spiro, Spiro, William, Greg

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes