Sales Compensation and Expense Allowances

Special Circumstances

You will need special protocol to deal with the following situations:

• orders falling through
• departing employees
• large orders
• multi-year contracts
• e-Commerce

When an order falls through

It is advisable to pay commissions only after a sale has been completed. If you do choose to pay commissions at the time of sale, make sure to enter in the sales contract the method by which lost income will be recovered from the sales employee or the customer if the order falls through.

Walking commissions

Also, have a policy for when your company will pay commissions to departing employees. This may be when the:

• customer pays for the order
• order is shipped
• order is placed
• employee has his or her last day

Whatever you decide, be sure to pay departing employees what they are due.

Large orders

When large orders come along, you face having to give employees large incentives based upon the regular commission rate. This can ultimately lead to lower motivation, since an employee makes several months' worth of income in a single sale.

Some ways to deal with large orders are to:

• exclude them from quotas, so that sales staff still have to work to meet their targets
• provide a reduced rate for these orders (although expect employee resentment if you do this)

Inform the sales personnel of your solution ahead of time to reduce hard feelings.

Multi-year contracts

If your salesperson signs a multi-year contract with a client, you won't want to pay out annual incentives to the salesperson, since that may reduce their productivity and drive. Instead, you can:

1. stagger payments over the contract period, with reduced payouts in later years
2. give the salesperson a net present value payment based on the anticipated revenue from the contract.
3. OR
3. provide a signing bonus to the employee, based upon the value of the contract

e-Commerce

Websites are excellent for marketing products, but salespeople should NOT be rewarded for orders that arrive unsolicited over the Internet.

The simplest way to separate sales personnel efforts from unassisted online orders is to have 2 separate websites:

• one for general internet traffic
• one for the sales staff-assisted orders

Online staff orders can be tagged to each salesperson through the use of a password or token system.