Page 70 - DMGT507_SALES AND PROMOTIONS MANAGEMENT

Sales and Promotions Management

Notes Consider the Compensation Patterns in Community and Industry

Because compensation levels for sales personnel are related to external supply and demand
factors, it is important to consider the prevailing compensation patterns in the community and
the industries. Management needs answers to five questions.
1. What compensation systems are being used?
2. What is the average compensation for similar positions?
3. How are other companies doing with their plans?

4. What are the pros and cons of departing from industries or community patterns?
5. What calibre of salespersons is required to be effective as well as cost efficient?

Determining Compensation Level

Management must determine the amount of compensation a sales person should receive on the
average. The compensation level might be set through individual bargaining or on an arbitrary
judgment basis. Management should ascertain whether the caliber of the present sales force
measures up to what the company would like to have. If it is too low, or if the company should
have lower-grade people than those currently employed, management should determine the
market value of the sales personnel of the desired grade.

Management weighs the worth of the individual person by estimating the sales and profit
money that would be lost if particular sales people resigned. Another consideration is the
compensation amount the company can afford to pay.
Provide for the Various Compensation Elements

A sales compensation plan has as many as four basic elements:
1. A fixed element, either a salary or a drawing account to provide some stability of income.
2. A variable element to serve as an incentive.

Example: A commission, bonus, or profit sharing arrangement
3. An element covering the fringe or plus factor such as paid vacations, sickness and accident
benefits, life insurance, pensions.
4. An element providing for reimbursement of expenses or payment of expense allowances.
Management selects the combination of elements that best fits the selling situation. The
proportions that different elements bear to each other vary. However, most companies split the
fixed and variable elements on a 60:40 or to 80:20 basis.

Special Company Needs and Problems

A sales compensation plan is no panacea for marketing ills, but it is often possible to construct
a plan that increases marketing effectiveness. If a company's earnings are depressed because
sales personnel overemphasize low margin items and neglect more profitable products, it may
be possible, despite the existence of other managerial alternatives, to adjust the compensation
plan to stimulate the selling of better balanced orders. Specifically, variable commission rates
might be set on different products with higher rates applying to a neglected product.

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