The firm must keep a few general points in view while designing the sales compensation plan. In the first place, it must recognize that there would be some inherent conflicts among the different objectives of its compensation plan. Second, there is no single ideal plan that fits all situations; plans must be company specific. Third, salesmen compensation should be related to the overall compensation of the company and should also achieve external parity in salesmen’s earnings. The firm must also correctly understand the role of financial and non-financial compensation. Financial compensation must be adequate. It is actually the starting point.
Apart from salary and commission, a number of other incentives and perks can be used as part of salesmen’s compensation. Various combinations under each category are also possible. Depending on the product characteristics, requirement of the firm and competitors’ practices, a suitable compensation plan should be developed. Also, for different types of salesmen, different compensation plans can be tried. For example, new recruits and the veterans, the technical salesmen and the general purpose salesmen, the rural salesmen and the urban salesmen can be distinguished from one another and given different compensation plans. Finally, a compensation plan that is sound today may not be sound tomorrow. A revision of the plan may become essential as the firm moves through times.
As the job of salesmen involves a great deal of travel, compensation towards travel expenses in another key area of decision in sales compensation. Cost of travel and other incidental expenses incurred by the sales force form a sizeable part of the selling cost of any firm. Obviously there must be a well-formulated plan governing travel compensation.
Basically, travel compensation should be such that the salesman is not out of pocket because of travel on behalf of the company, nor does he make it a source of income. Ideally the plan should provide for the reimbursement of all legitimate expenses incurred by the salesmen on account of travel on company’s business. The plan should not lead to any dispute between salesmen and the firm.
Alternatives Schemes of Travel Compensation:
Different firms follow different schemes in this regard. Some of these are:
1. The ‘honor plan’
2. Unlimited actual based on bills/vouchers produced
3. Actual subject to a ceiling.
4. A fixed daily allowance plus travel cost as per actual.
5. Commission alone and no travel compensation.
Since travel usually involves the use of vehicles by salesmen, a plan for the reimbursement of expenses in this regard is equally necessary. Some of the plans followed by different firms in this respect are:
1. Flat mileage rates
2. Graduated mileage rates
3. Standard allowances, irrespective of distance traveled
4. Combination of standard and mileage allowances.
5. Reimbursement of actual, with or without vouchers.
Other perks commonly extended to salesmen include medical benefits, pension, gratuity, holiday travel concession, entertainment allowance, and insurance benefits.