A PRESENTATION ON

SALESMAN’S COMPENSATION PLANS

INTRODUCTION
 Every firm has to formulate a good compensation
plan while recruiting salesmen.
 The salesmen’s compensation plan or remuneration
plan means the monetary payment reward by a
firm to its salesmen, in consideration of the
performance or service rendered by them.
 A good remunerative plan is a good tonic, with
which employees put forth efforts in attaining the
goals of the organization and motivate more
effectively.
 The salesmen play a significant role and are
important, because they create income for the firm
through sales.
 Moreover salesmen’s role also decides the success or
failure of the firm. Therefore, it is an important
matter for the management to formulate a good
and sound remunerative plan.
ESSENTIALS OF GOOD
REMUNERATIVE PLANS
 It should be simple to understand.
 It must be fair to salesmen and the firm.
 It should be flexible enough to provide scope for
adjustment of changes in business.
 It should be reviewed periodically in order to keep it
up-to-date.
 It should provide adequate incentive to ensure living
wages.
 It should motivate the salesmen to boost performance.
 It should ensure a minimum earning to a salesman.
 Its monetary benefit should be in proportion to the
objectives to be attained.
 It should be easy and inexpensive to administer.
 It should be competitive with the remunerative plan
of rivals.
 It must have provisions to reward a salesman whose
performance is above average.
 It should have provision for periodic increment or
promotion from the lower to the higher grade.
METHODS OF COMPENSATION
 Straight Salary Method:
 It is the easiest of all remuneration plans and is the most
common method. Under this system, salesmen are paid
a predetermined amount, as a salary, generally at the
end of every month.
 That is, a fixed amount of salary is payable to the
salesman, regardless of his sales volume. The amount is
fixed and does not vary. There is a fixed time-scale,
with annual increments, for a continued service.
Generally, the amount consists of basic salary, dearness
allowance, and other allowances. Other amounts to
meet the business expenses will also be paid.
MERITS OF STRAIGHT SALARY
METHOD
1. The scheme is simple to understand.
2. It assures a definite guaranteed income to the
salesman.
3. It exposes security and stability of income to salesman.
4. It helps to develop satisfied and loyal sales force.
5. It lowers labour turnover.
6. It is a good system when sales are uncertain.
7. When new salesmen are appointed, it is an effective
scheme.
8. Consumers’ needs and desire are better served
DEMERITS
 It makes no difference between the idle salesman and active
salesman, as all get equal salary.
 It does not stimulate the salesmen to work harder because
salary is paid irrespective of sales volume.
 Reward is unrelated to effort or effort is unrelated to reward,
as under this system, there arises no relation between effort
and reward.
 It over compensates the inefficient and under compensates the
efficient.
 The selling cost is not related to the sales volume.
 In a slack season, company can not reduce selling costs, during
prosperity salesman are not benefited with additional income.
SUITABILITY
 When salesmen are newly recruited and are under training.
 When company wants to enter a new territory.
 When company wants to launch/ promote a new product.
 When company wants to utilize services of its salesmen to build
image, goodwill, and reputation.
 When product is complex and technical that requires the
salesmen to educate, train and provide pre-sales and post-
sales services.
 When salesmen are ready to work as per fixed salary and
company is capable to pay fixed salary regardless of sales
volume.
STRAIGHT COMMISSION METHOD
 This method is based on the result, and not on the
basis of time. The productivity i.e., volume of sales
made by a salesman is a basis for remuneration.
 The commission is calculated usually as a
percentage on total orders secured i.e., total value
of sales. The rate of commission may be flat or
differential.
 Differential rates aim at lower commission up to a
standard performance and a higher rate over and
above the standard performance.
MERITS
 There is a direct relationship between selling costs and sales revenues.
 There is a clear distinction between efficient and inefficient salesmen.
 It provides maximum monetary incentive to salesmen.
 Salesmen are free birds.
 The scheme works as a great incentive to efficient salesmen.
 The plan is simple to understand and easy to operate.
 It attracts salesmen of better ability and caliber.
 An effective cost control system can be formulated, as there is a direct
relation between selling cost and sales amount i.e., both will move hand in
hand.
 Personnel management problem is the least.
DEMERITS
 From Management point of view, it is difficult to manage sales
force as It has no direct control over salesmen. They are
independent.
 Salespeople concentrate only on easy sold products and easy
sold territories.
 Since they are constantly engaged in raising sales volume, they
do not provide satisfactorily service to customers or attend
customer complaints.
 Salesmen avoid promotional work and creative salesmanship.
They remain persistent to achieve sales.
 Salesmen develop money-oriented mentality. They frequently
changes the jobs.
SALARY PLUS COMMISSION METHOD

 This is popular and widely practiced method/plan to

remunerate sales force. Under this method, over and above
fixed and regular salary, sales is paid commission too.
 Rate of commission may be fixed or variable, may be common
or different to all products and territories.
 The strong aspect of this method is That it combines elements of
regular fixed payment and an incentive to do better.
 It satisfies both a new salesmen, and experienced and
enthusiastic salesman.
 EX. A Company pays salary RS. 5000 to each salesman and
5% commission on total sales achieved.
MERITS
 It satisfies both types of salesmen- Fixed regular income
seekers as well as ambitious salesmen.
 Company has to bear minimum fixed costs of selling.
Cost of commission is compensated with increases sale.
 It ensures stability in staff. After training and
experience, they continue with the company as they find
the scheme fit with their expectations.
 They devote full time energy for selling the products.
They are not required to do any extra activities to earn
extra.
DEMERITS
 It is to determine fixed salary and rate of commission.
 It is comparatively a complex plan. Company has to maintain
record of individual salesman to decide on rate of commission
and/or amount of compensation.
 Sometimes, when companies pay amount as fixed salary, it is
difficult for salesman to achieve more sales during slack
seasons. it leads to exploitation.
 Company, to adjust with its new need, frequently changes the
proportion of fixed salary and rate of commission. Ultimately,
salesmen’s interest is victimized.
PROFIT SHARING
 This is not much popular mode of payment. It is not part of
regular payment to salesmen.
 Profit sharing is used occasionally or in the exceptional cases.
 Profit sharing can be linked with salary and bonus, commission
and bonus, or salary or with any other combinations.
 This benefit is offered either on product wise profits, territory-
wise profits or total profits.
 It depends on attitude and intensions of management. If there
is adequate profit and if company wants to share the profit
with the salesmen, profit sharing is possible.
 Merits
 Bonus is paid for extra work. So, It is not expensive.
 Amount of bonus can be determined easily on the basis of
conditions laid down for the purpose.
 Company enjoys full freedom in changing conditions related to
bonus.
 Capable and all rounder salesmen are easily attracted.
 Demerits
 It is difficult to decide upon the proportion of fixed salary, rate
of commission, and amount of bonus.
 Bonus and profit sharing may lead to dispute salesmen and
company management, when salesmen treat these benefit as
a part of regular income.
 A lot of clerical work increases administrative cost, ultimately
such cost are transferred to selling costs.
Point or merit based method
 In India that is not popular method. It is relatively a new method to
remunerate salesmen. Here, amount of remuneration to be paid to
salesmen depends on merits, marks or point the salesmen have
obtained.
 Company fixes rate per merit in advance and communicate same
with the salesmen.
 Opinion of salesmen may be considered important to determine rate
per merit. Amount of salary can be arrived at by multiplying points
with rate per point.
 EX.

Creating a new customer : 5 points

Winning competitors' customer : 10 points
Collecting useful information : 20 points
Suppose salesmen has achieved 500 points and rate per point is
RS.10, his income is 500(10) 5000 rupee.
Salesmen training
 Training salesmen is an act of imparting skills and
knowledge necessary for performing the work
better.
 Training is necessary to both new and experienced
salesmen.
 A new salesman requires training due to the fact
that he is not knowing how, when, and, what to sell.
He needs skills and knowledge to deal with
customers effectively.
Objective and importance of training
 Training the sales force is important to increase sales volume,
improve morale, reduce selling costs, improve relations, enable them
to adjust with changing work, improve image of company, and so
forth.
 Below stated points indicate objectives and importance of
training the salesmen:
 1. To explain the sales people about basic principles of
salesmanship.
 2. To provide information about market territories and customers.
 3. To tell them regarding the company’s policies, objectives,
strategies, problems, etc.
 4. To inform them about products of the company.
 5. To explain them about their duties, types of tasks, authority, and
restrictions.
 6. To provide salesmen the complete details about company’s
competitors.
 7. To teach them how to report, how work with colleagues, and how
to behave with superiors.
 8. To teach them effective techniques to contact customers, make
effective sales presentation, convince customers, get orders, and to
handle their complaints and objections.
 9. To make them aware of themselves.
 10. To change or modify their attitudes, and remove prejudices and
wrong beliefs.
 11. To motivate them for maximum efforts and build high morale.
 12. To refresh or update them periodically, etc.
TRAINING METHODS
 LECTURE METHOD:- This is an ancient and
conventional method of teaching and training. The
trainer talks on the topic being discussed and the
trainees watch and listen to what is being said by
the trainer.
 It also provides chance of interaction between
trainer and trainees.
 These days trainer uses examples, demonstration
and audiovisuals aids to make lectures more
effective.
Personal conferences
 This method is often considered as informal and
unstructured where trainees discuss with either a
colleague or a senior problems such as effective use
of selling time, route planning, calls scheduling etc.
 The trainer and trainee can then jointly analyse the
problem and discuss solution.
DEMONSTRATION
 Demonstrations are more effective when it comes to
conveying information regarding new products and
selling techniques.
 Particularly when a company wants to train its
employees regarding the new products of the
company.
 Demonstration are very effective, very often
demonstration are clubbed with other training
methods like lecturing.
ROLE PLAYING
 AS the name it self suggests as this method of training is like
a play. Like in a play we have actors playing characters, in
role play we have trainees who act out a certain situation.
 The role playing session begins with the trainer describing
the situation the different personality involved.
 The trainer provides the needed props, then designates
trainees to play the salesmen, a prospect and other
character.
 Each plays his or her assigned role and afterwards they
together with other group members and the trainer appraise
each player effectiveness and suggest how the performance
each might have been improved.
Case discussion
 This method is often defined as learning by experience.
A case means nothing else but write- up of a situation.
 The size of this write up may vary from half a page to
a number of pages.
 A group of trainees are then brought together to
analyse the situation in the case.
 A lot of time when cases are relatively large, the case
is given to each trainee in advance, who then come
prepared for the discussion so that time is not wasted in
reading and analysing the case.
 The larger the number of people analysing the case the
better and more in depth will be the solution.
On the job training
 This method is also very old and popular. Even today it is
widely practiced method of training in various areas of
business.
 Here, a newly recruited person is straight- a- way put on job
under experienced person.
 It is more of coach and pupil relation between the two. The
experienced person lets his junior observes how the selling is
being done.
 He then slowly lets them take over a few parts of the selling
process like introduction of the company, the introduction of
the product and so on.
 The trainees involvement in the selling process is then slowly
increases to an extent that he can carry out the entire selling
process by themselves.
Programmed learning
 According to this method a subject matter is broken down
into instruction units which may be in the form of book or
and an instruction manual even a series of presentation.
 This instruction units may be entailed by question or
problems for trainees to answer or solved.
 The trainee then submit assignment or appear for test to
ensure his learning.
 sometimes such programmed learning may be made of
various modules and once a trainee has cleared one module,
he goes on to the other.
 It is a method very similar to our conventional school and
college learning method.