Quick answer: A good sales compensation plan is simple, fair and economical to run. It gives salespeople a secure base income plus incentives tied to effort and results, motivates them, stays flexible enough to adjust to change, supports company goals, treats people equally, keeps working hours reasonable, and is competitive with what other employers pay.
| Area | Requirements |
|---|---|
| Security | Secure income, stability, fairness, equality |
| Motivation | Incentives, effort linked to rewards, benefit to the salesperson |
| Company fit | Economical, attains goals, flexible, adjusts to change |
| Market | Competitive, reasonable working hours, simplicity |
A proper or sound compensation plan has a direct bearing on the productivity, efficiency, and morale of the sales force. A good compensation plan brings sales stability and controlling effect on salesmen.
Requirements of a Good Sales Compensation Plan
A good sales compensation plan meets several requirements.
A sales manager must recognize the following guidelines for a good compensation plan.
1. Simplicity
Simplicity is a hallmark of a good compensation plan.
The plan should be simple enough for salespeople to understand readily; they should be able to figure out what their incomes will be.
2. Fairness
A good compensation plan must treat all salespeople fairly.
Nothing will destroy salespeople’s morale faster than a feeling that their pay is inequitable.
One way to ensure fairness in a plan is to strive to base it as much as possible on measurable factors that are controllable by the Salesforce.
3. A Secure Income
Every plan should provide a regular income, at least at a minimum level.
The principle behind this point Is that salesmen should not have to worry about how to meet living expenses.
If they have a bad month, if they are in seasonal doldrums, or if they are sick and cannot work for a period they should have some income.
Related: 13 Importance and Objectives of Sales Compensation Plan (Explained).
4. Economical
A compensation plan should be economical to administer.
A firm whose compensation expenses are disproportional to its revenues will have to increase the price of its product or suffer decreased profit margins.
5. Flexible
A compensation plan should be sufficiently flexible to meet the needs of individual territories, products, and salespeople. 17 Key Features of an Ideal Compensation Plan (Explained).
6. Stability
At the same time, the basic plan should possess stability.
The basic pay plan should contain features that enable a company to meet changing conditions without having to change the basic plan.
7. Motivational
The plan must fit with the rest of the motivational program.
It does not conflict with other motivational factors, such as the intangible feeling of belonging to the sales team.
Related: Top 7 Need of Sales Training for Organizations (Explained).
8. Beneficial to Salesman
A sound remuneration plan should be based on present and future needs.
It should make provision for housing, dearness allowance, conveyance, city allowance, medical aid, pension, provident fund, etc. in compensation structure.
9. Adjusts Changes
The plan should adjust to changes in performance.
Related: 11 Advantages of Proper Selection Process (With Examples).
10. Attains Goals
The plan should help in attaining the objectives of sales organizations.
11. Relates Efforts to Rewards
The remuneration of the salesman should be based on the efforts made by the salesman.
There should be a direct relationship between efforts, results, and rewards. 14 Need and Importance of Good Recruitment (With Examples).
12. Based on Equality
A compensation plan should be based on the principle of equality.
Salesmen performing similar jobs must get wages at an equal rate.
13. Provides Incentive
A good compensation plan provides for many incentives in addition to regular wages.
It motivates us to increase efforts.
Related: 31 Characteristics of Salesmanship (Explained with Examples).
14. Regulates Working Hours
A good compensation plan should be such as to enable the managers to control the working hours of salespersons.
15. Competitive
A sound wage plan should be competitive with other organizations.
It should be sound to attract a huge number of Salesmen in comparison to other organizations.
Thus, now you know the requirements of a good sales compensation plan.
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