Sales Compensation and Expense Allowances

TYPES OF PLANS AND COVERAGE DESIGN

Once you have set your goals, it's time to choose the type of plan to use:

• fixed salary
• straight commission
• OR
• a combination plan

Fixed Salary

Considered by some to be obsolete, fixed salary plans pay sales employees a base salary with no incentive. For the organization, a fixed salary plan is very simple. A sales employee's salary can be administered just like those of regular employees.

Fixed salary plans may encourage loyalty and customer service, but discourage risk taking. They are well-suited to security-minded individuals who are uncomfortable not knowing how much they will make next month, or are unable to budget the good times to cover the bad.

Salespeople under a fixed salary plan are more willing to perform the non-sales aspects of the sales job. From the standpoint of the customer, the salesperson on a fixed salary is more likely to provide service and less likely to pressure the customer into a sale and move on.

When to use a Fixed Salary

It is a good idea to use fixed salaries when the:

• product is highly complex
• time it takes to culminate a sale is long
• sales effort is a team affair
• industry's regulatory environment prohibits direct sales

Disadvantages

Compensating salespeople on a salary basis makes it difficult to measure performance effectiveness. Fixed salary plans also may lead to lower motivation, since employees are not rewarded based on sales volume. Finally, from the organizational viewpoint, fixed salaries make compensation a fixed cost rather than a variable cost. This makes salaries a burden in times of low sales.