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Designing Compensation Programs for Sales Force

At my workplace, the management is going to implement a compensation program for its sales force to compete in the market. Firstly; I am no one to comment; but I happened to read one book on Sales Force Management [1] for a research during my recent Masters Program, and in that book there was a whole chapter on Designing Compensation Program on Sales Force. The book proposed the five step strategy for developing the compensation program which I am trying below to summarize.

  1. Identify major issues in developing the program itself; which other teams will affect; what will the program impact on existing sales and other sales channels like partners; also identify in which form you will compensate; salaries, bonuses, commissions or contests; each has their own pros and cons and each one works best for particular situation; for instance salaries incentive works best if you want to mobilize the non-direct sales activities
  2. Understand how to design the program; which parties to involve. Involving key sales person from key territories is recommended. One should also local managers to decide the final mix of compensations for his local sales force. Don’t design the plan centrally and dictate to different sales team and don’t create similar framework for different “kind” of salespersons; for instance one program can’t work for sales persons selling student package and other selling broadband service to corporate.
  3. Determine the elements of job performance to evaluate and reward. One key point here is that sales forces are paid to make sales; the incentives are only to make them work harder and show unexpected performance. One should use consistent performance measures across the board and at the same time should keep in mind that consistence can’t be brought one every performance measure; for instance one can’t measure everything quantitatively; but same style of measurement should be use in all territories and for all “kind” of salesperson (having different programs for different “kind” of salesperson is another thing)
  4. Determine the most appropriate mix of financial compensation program; when determining the mix; one should consider important factors like “when is a sale a sale?” and how to keep balance between team and individual incentives. What would be the measurement plan? Linking customer satisfaction and sales volume incentives is also recommended; as by the end of the say eventually loyal customers are the asset of the enterprise and not the sales force. One should also think that with the proposed mix; one would not get paid “too much” or “too little”; there should be an Incentive Ceiling so that sales force don’t get paid beyond certain limits otherwise it can be a serious concerns for other employees. There are other important concerns like when should the sales representative receive incentive payments (Gap between Sales and Income concern from financial standpoint) and how to tackle the direct sales and indirect sales (sales person claiming the sale of other channels)
  5. One should also define non-financial incentive programs like career paths. These play as important roles as financial programs. Financial programs have short term impact; and these programs have long term impacts.

[1] Churchill, Ford, Walker, Johnston, Tanner (2000), "Sales Force Management", McGraw-Hill Higher Education

Published Monday, September 10, 2007 1:05 PM by khurram
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