18 Requirements of Good Sales Compensation Plan (Explained)

A proper or sound compensation plan has a direct bearing on the productivity, efficiency, and morale of the sales force. Good compensation plan bings sales stability and controlling effect on salesmen.

requirements of a good sales compensation plan
requirements of a good sales compensation plan

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. Guarantee for Living Wage

A sound competition plan for salesmen should have to give a guarantee for a living wage, preferably in the form of a secure income.

8. 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).

9. Beneficial to Salesman

A sound remuneration plan should be based on present and future needs.

Importance and Objectives of Sales Compensation Plan
Importance and Objectives of Sales Compensation Plan

It should make provision for housing, dearness allowance, conveyance, city allowance, medical aid, pension, provident fund, etc. in compensation structure.

10. Adjusts Changes

The plan should adjust to changes in performance.

Related: 11 Advantages of Proper Selection Process (With Examples).

11. Attains Goals

The plan should help in attaining the objectives of sales organizations.

12. 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).

13. 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.

14. 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).

15. Regulates Working Hours

A good compensation plan should be such as to enable the managers to control the working hours of salespersons.

16. 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.

17. Attractive

A good compensation plan should be attractive and encouraging so as to return the able salespersons.

Related: 27 Important Functions of Sales Management (With Examples).

18. Well Designed

A proper compensation plan should be designed in consultation with the salesman, sales supervisors, and top managerial authority.

It should be approved by all concerned parties before it is implemented.

Thus, now you know the requirements of a good sales compensation plan.


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