Sales-force compensation is number one problem confronting every sales management. Compensation, here, stands for the monetary and nonmonetary reward given by the firm to, its sales-force in return for the services rendered. Though, compensation stands for contractual payments, there can be non-contractual and ad-hoc payments.
If sales-force recruitment and the training create and develop the manpower needs, the compensation aspect cares for its maintenance in the organization for longer period.
Significance of sound compensation:
Sales-force compensation is very important because, it directly affects not only the sales costs and the profits but, more significantly, the attitude, interest and the behaviour of salesmen and the nature of their task.
Perhaps, the most difficult task is how to reconcile the conflicting objectives of low sales costs and higher profits on one hand and adequate, attractive earnings with security, on the other.
In that sense, no compensation plan is perfect that meets the needs of management in all respect satisfactorily and sales-force wholeheartedly. At the best, it is the compromise between the two extremes. However; we cannot underestimate a compensation plan that pays well its sales-force.
In fact, the importance of paying well lies in the following points:
1. To attract best salesmen:
Gifted, talented and high calibre salesmen are available only at higher rewards, both monetary and non-monetary. Pay more and get the best. In fact, cheap is costlier. Therefore, costlier is qualitative.
2. To keep sales-force contented:
There is direct link between the payment made to the salesmen and their satisfaction. A person is supposed to perform his duties, look at his job well when he is contented or satisfied. Satisfaction being a state of mind depends on what he gets in monetary and non-monetary forms for his job or the efforts put in.
3. To have longing loyalty:
The aim of personnel management is not just to build competent sales-force but have a pool of selected persons expected to serve life-time for the nourishment and nourishment of the selling house.
Loyal and trust-worthy staff makes the organisation rich, dependable and successful. Good pay-masters can expect this.
4. To have sound employer-employee relations:
Bickering, misunderstandings and drags arise mostly due to money matter partial or ill- treatment. The wheels of sales organisation must not squeak. One such wheel is sales-force that can be kept in kilt if paid well and treated well. It is the sound compensation plan that greases the squeaking wheel for frictionless working.
Level of sales-force compensation stands for what should be the reasonable compensation for the efforts of the sales-force. Level of compensation is significant to both the employers and the employees.
It is but natural that sales-force expects higher rewards for its efforts and the management is intended to pay lesser amount. The actual level of compensation lies between what the companies intends to pay and the sales- force expects to receive.
However, care must be taken to see that each compensation level is neither too high nor too low for both the extremes are dangerous and undesirable. Higher compensation blunts the sales-staff and makes then complacent and not prepared to move up the higher positions; it also creates good deal of heart-burning.
On the other hand, lower compensation than warranted makes the good salesmen to leave the unit and the continuing sales-force frustrated.
Whether the level of compensation is going to be high or low is dependent on certain factors. In practice, the actual level of compensation is the compromise of the interacting forces which are outlined below:
1. Sales competence:
The compensation level is bound to be higher in case of salesmen with calibre, competence or the sales acumen. It is the sales personality experience and other attributes that decide the compensation payable.
2. Extent of advertising:
Sales efforts of sales-force are geared by promotional efforts too. Naturally, higher the level of advertising in the sales organisation, lesser will be the input by the sales-force and hence, lower will be the level of compensation.
3. Degree of training:
A highly trained salesman is quite capable of handling the sales job with ease, confidence and grip. However, the company has invested in him to make him worthy of the sales profession. Hence, more the training intensity, lower will be the compensation level.
4. Financial viability:
It is the financial strength and viability of a sales organisation that puts limits on the levels of compensation. Normally, a company which is well to do will not hesitate to pay higher compensation than the one with moderate means.
5. Bargaining power:
Leaving aside the quality, calibre of salesmen, it is the bargaining capacity that plays a decisive role in putting higher limits. Thus, stronger bargaining capacity of the salesmen fetches them higher compensation level.
6. Method of compensation:
Much depends on the method of compensation plan or the method. We have pure salary and pure commission plan and the combination of the two. The commission plan and salary and commission plan normally work higher compensation level than mere salary scheme.