Developing Sales Compensation plan

Presented by: Raouf Hussain Roll No. 40.

SALES COMPENSATION:

. The compensation plan is how you operationalize the sales force, get them aligned with the business goals, and get them motivated and driven to implement your go-tomarket strategy."

General Compensation Structure

Ranking It is widely being used in businesses. It sorts job description in the order of worth and measures only overall appraisals of the relative worth of different jobs.

Grading A system of grades & grade description, against which individuals jobs are compared. The grades are described in terms of job responsibility, skills required, supervision given & received, exposure to unfavorable & hazardous working conditions.

Point system It involves establishing & defining the factors common to most jobs that represent the chief elements of value inherent in all jobs. The specific factors chosen are, minimum education required, mental & physical skills, responsibility, personality requirements. Each factor is assigned a minimum & maximum no of points, different ranges being associated in line with relative importance of the factors.

Factors comparison method It employs selected factors & evaluation scales. It compares sales person on a set of selected factors & rank them according with the performance performed by them under criteria factors.

Competitors offer The compensation structure made while seeking the competitors offering to their sales staff .

Determining Compensation Level

Management must determine the amount of compensation a salesperson should

receive on the average. Management should ascertain whether the caliber of the present sales force measures up to what the company would like to have.

Management weighs the worth of individual persons through estimating the sales &
profit dollars that would be lost if particular salespeople resigned.

Another consideration is the compensation amount the company can afford to pay.
The company should make a cost estimate on a break even chart to propose the compensation plan for every individual salespeople.

Compensation elements
A sales compensation plan has many as four basic elements.

A fixed element
Either a salary or a drawing account to provide some stability of income.

A variable element
For example, a commission ,bonus, or profit sharing arrangement to serve as an incentive.

An element covering the fringe or plus factor

Such as paid vacations, sickness & accident benefits, life insurance, pensions.

An element providing
For reimbursement of expenses or payment of expenses allowances.
Management selects the combination of elements that best fits the selling situation. The proportions that different elements bear to each other vary of 60:40 to an 80:20 basis.

TYPES OF COMPENSATION PLANS

Straight salary plan
Simplest compensation plan. Salesperson receive fixed sums at regular intervals (e.g. at the end of month ), representing total payments for their services. Such plans are more common among industrial- goods companies than among consumer- goods companies.

Such plans are engaged in trade selling. These jobs, in which selling amounts to mere order taking, abound in the wholesale & manufacturing fields, where consumer necessities are distributed directly to retailers. It is also used for paying driversalesperson selling liquor & beverages, milk & bread, similarly distributed products.

Straight commission Plan The theory supports the individual sales personnel should be paid according to productivity. As sales volume rises to different levels, the commission rates differ for different products, categories of customers, or during selling seasons.

This method is common in the clothing, textiles & shoe industries & in drugs, hardware wholesaling. Firms selling intangibles, such as insurance & investment securities, manufacturers of furniture, office equipment & business machines also are frequent users of straight- commission plans.

Salary plus commission

Most sales compensation plans are combinations of salary & commission plans. By a judicious blending of the two basic plans, management seeks both control & motivation. Actual results depend upon managements skills in designing & administering the plan.

Use of bonus & Fringe benefits

A bonus is an amount paid for accomplishing a specific sales task, it is paid for reaching sales quota, performing promotional activities, obtaining new accounts, following up leads, setting up displays, or carrying out other assigned works. It is like an additional financial reward to the sales person for achieving results beyond a predetermined minimum.

Fringe benefits do not bear direct relationships to job performance they are provided by federal & state law. For example, payment for social security premiums, workers compensation, pension plan, holidays , vacations, hospitalization insurance, car parking, company providing housing etc.

STEPS FOR DEVELOPING SALES

COMPENSATION PLAN
Assess your needs How effective is your existing plan? Is it in line with and does it contribute to the accomplishment of your corporate goals? If not, what needs to change? Set compensation plan objectives What do you want this plan to achieve? Growth, Greater Service, Profitability, Customer Focus? Your plan should not merely address short-term financial issues. Define the sales reps role What role do sales reps play in finding, cultivating and keeping customers? What challenges do they face? Establish the pay range Determine what you can afford to pay and how competitive you want your pay structure to be. Where have you current reps come from? Where do those who leave go? Answers to these questions will provide insights into some of the most basic elements of making your sales compensation plan more competitive.

Design the plan Make it understandable, equitable, flexible, achievable and measurable. Although simple is good, if youre not careful you can be simply wrong, Your sales team will more likely embrace a plan that is realistic, free of caps, based on performance factors they can control, and guaranteed not to change midstream. major design flaws Test the design Using previous actual performances and/or projections test how close your new compensation plan comes to your pay strategy. Modify if necessary.

Train the sales plan administrator and sales manager(s). How well they understand the new compensation plan and their ability to explain its intricacies to the sales team are key contributing factors to the plans effectiveness. Communicate the plan How well the new compensation plan is communicated to the sales team will be a key factor to its success or failure. Be prepared, be open, and follow up with answers to questions or concerns promptly. Implement and monitor the plan Set frequent meetings with the sales manager(s) and the plan administrator to review plan performances. Use field feedback and observations to finetune the plan for the following year. Make immediate changes only to correct

Figure: Average Salary offered in Indian Telecommunication Sector

Apart from pay packages marketing people also get high incentives and perks. The industry provides for special allowances such as annual bonus, house rent allowances, mobile allowances, transportations, travel leaves, paid vacations, etc.

COMPENSATION PLAN OF LG

Compensation
LG-Ericssons compensation system includes both cash and benefits, and is designed to reward each individuals performance and competencies. Cash Compensation LG-Ericsson operates different salary systems for R&D and general staff, and sales staff, based on the nature of their jobs. These systems are designed to motivate the employees for their best performance.

- Annual salary : Different raise rate based on performance evaluation. - Incentive : Spot Incentive to recognize extraordinary achievement throughout the year. - Company Performance Bonus : Annual Performance Bonus based on Company Performance. - Sales Incentive : Sales Incentive based on Individual or Group performance. Employee Benefit programs

Social Insurance

National Pension Program, Industrial Accident and Compensation Insurance, National Health Insurance, Employment Insurance & Retirement Allowance Program.

Work Life Benefit

Service Awards, Medical Checks, Commuting Bus, Lunch Support, Group Term Life Insurance, Language Study Support.

Personal & Family Benefit

Housing Loan, Congratulation & Condolence Support, Tuition Subsidy for Children, Recreational Facilities, Medical Insurance & Expense Support for Employee and Family

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QUERIES

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