Sales Compensation and Expense Allowances

Types of combination plans

There are a number of ways to establish incentives:

• commission-plus-draw
• salary-plus-commission
• salary-plus-bonus

Commission-plus-draw plans. The employee receives a specified salary each payday. The total amount the employee is paid on each payday is called a draw. Then at periodic times (such as each quarter) the total commissions due the salesperson are calculated. The total draw for the period is subtracted from the commissions due the employee. The employee receives the remainder.

If the draw exceeds the commission, the organization must decide whether to:

• reduce the draw
• carry over the deficit
• retain the salesperson in the position

Salary-plus-commission plans. The employee receives a base salary AND a percentage of his or her sales. This percentage would be lower than in a straight commission plan.

Salary-plus-bonus plans. The employee receives a base salary and a bonus that is tied to the employee's sales performance. A bonus is granted after the employee reaches a given level of sales.

These plans can be quite simple or very complex. Simple ones resemble a commission-plus-draw system, with a percentage payment made for sales above a standard.

More complex plans have payment schedules that vary with sales volume. Or they make payments for factors other than sales volume, such as:

• obtaining new accounts
• reducing sales expenses
• improving market penetration
• increasing order size

A variation on the more complex bonus plans is the point plan. Here the salesperson receives points for meeting and exceeding goals or quotas in a number of areas. These points are then converted to monetary values.

When deciding on the mix, figure out which traits you want to encourage.