Designing Incentives and Contests
Experts view that following are the essential requirements of a sound compensation plan:
1. It is simple
Simplicity is the fundamental principle of a sound sales compensation plan. Salesmen suspect any plan that they do not understand, totally and this weakens their confidence and lowers their morale. That is ‘ why, the plan of compensation must be simple to calculate and easy to understand.
2. It is adequate
A sound plan generates enough compensation for the salesmen to maintain a decent standard of living in the line. Salesmen must be allowed to earn enough to meet their obligations to save for the future.
The factors like cost of living, minimum standard of living, capacity, age, education, experience etc., are to be taken into account. A critical analysis of compensation plans a good way-out in fixing adequate compensation for the employees.
3. It is flexible
The compensation plan so designed must be capable of being adapted to varying selling conditions that are subject to change.
The plan should be adjustable to the differing nature of salesmen, territories, products, compensation present in any sales territory and the like. A supple plan is one that works well both in bad and good times.
4. It is fair and equitable
To win the hearts of salesmen their beating cooperation and lasting loyalty, the compensation plan should be fair and equitable to one and all. Discrimination and partial treatment are the costly mistakes for which the sales management will have to pay heavily in intangible terms.
The sales-force is quite keen and sensitive to these things of ill-treatment, discrimination, inequality, partiality and so on. No equally qualified and experienced persons are paid differently.
5. It is Economical
The purpose of sound compensation plan is to increase the sales and the profits at least cost. Decreasing cost per unit, lower expense and higher profit margin on unit and total sales is the aim, in effect.
The earnings of salesmen must be kept in kilt as such remuneration is one of the expenses. As per the experts view, such expense should not go beyond 5 to 15 per cent of the total sales value.
6. It is easy to Administer
Administrative ease implies reduction in the complications, time consumed in accounting department, paper work involved. To provide this much desired administrative ease, easy and realistic compensation plans are to be devised and implemented.
Complicated plans demonstrate mathematical excellence but have problems of red-tape and error-proneness.
7. It is incentive oriented
It must keep employees spurred. Monetary and non-monetary rewards for extra efforts put in are really nice stimuli that propel the salesmen to new heights of performance.
Additional compensation, over and above normal earning, results in increased sales and profits. This goes to distinguish between the efficient and the inefficient salesmen and improves overall performance well above the normal efforts put in by the sales-force.
8. It is Timely
Any compensation plan, however adequate, attractive and fair and equitable, is bound to lose its weight, if the payment is not made within the expected time.
Salesmen work for money but money is to be received at a point of time to which they are committed. Thus, the payments can be fort-nightly, monthly and the bonuses yearly or terminally. Money earned has value if it is received in the nick of the time.