Sales Compensation and Expense Allowances

Why Sales Jobs Lend Themselves to Incentives

The degree to which a sales representative may influence a customer’s decision to purchase a product or service should be a primary reason in determining whether or not an incentive sales compensation plan is suitable for them.

Sales jobs typically involve:

• independence
• boundary spanning
• measurability

Independence

When you picture salespeople, you probably envision someone working one-on-one with a customer outside the organization. In this type of situation, it is very difficult to supervise and control the salesperson. Traditional tools such as performance appraisal do not work well in this case, since supervisors often do not see their sales staff in action. This makes it attractive to rely on the outcomes of the job (sales made) to set pay.

It should be noted, however, that the degree of independence of salespeople varies with the job situation. There is a great deal of difference between a salesperson who is on the road, one who operates in a store where the supervisor is present, or an inside technology sales representative.

Boundary spanning

The salesperson represents the organization to the customer. This makes the sales position an important one to the organization's reputation.

Likewise, the salesperson represents the customer to the organization. This can create a situation of split loyalties.

As boundary spanners, sales personnel must be able to see both parties' points of view. Other employees in the organization may feel that the salesperson is "giving them trouble" in order to serve the customer. These employees may question the loyalty of the salesperson.

Having a separate compensation plan in which salespeople are paid based on measurable results can reduce feelings of inequity. Other employees can see that the sales team is paid based upon their individual success.

Measurability

Sales volume can be measurable and is connected with the efforts and ability of the salesperson. This makes the use of incentives based on sales volume an effective way to:

1. reward performance
2. control costs

Keep in mind that the Pareto principle (also known as the 80-20 rule) applies to most organizations. This principle basically means that 20% of your sales force will likely generate 80% of the results.

Sales compensation will likely shrink in bad times (when few sales are made) and rise in good times (when organizations can best afford it).