Most of us can easily visualize the “classic” salesperson.

However, this typical

image is not fully consistent with today’s modern complex sales force. While our
fabled territory sales rep is not gone, he or she has been joined by a cadre of
sellers. Many companies now sell through multiple sales channels.
WHY SALES COMPENSATION WORKS:
Some non-salespeople believe the best (and only way) to manage the sales
force is with an overly lucrative sales compensation program. This monetary-
centric view of sales representatives can lead to some false and unfortunate
conclusions about the importance of the sales compensation program. The source
of effective management has many competing theories. Great sales compensation
plans optimize both of these elements: communication and performance
measurement. Well-run sales departments treat sales compensation as one of
several levers of effective management. Along with other management tools, sales
compensation can play a contributing role to successful sales production.
THE POWER OF SALES COMPENSATION:
1) A well-designed sales job and sales compensation program can provide
dramatic improvement to a company’s sales results.
2) Sales compensation can provide the right focus on revenue growth, profit
improvement, product focus, account penetration, and solution selling.
3) When products, customers, sales leadership, jobs, measures, and rewards
are in alignment, sales results can be more than remarkable.
Various reasons for sales compensation:
(1) The first is equity, which may take several forms. Such as income
distribution through narrowing of inequalities, increasing the wages of the
lowest paid employees, protecting real wages (purchasing power), the
concept of equal pay for work of equal value compensation management
strives for internal and external equity.
(2) Efficiency which is often closely related to equity because the two
concepts are not antithetical. Efficiency objectives are reflected in attempts
to link to link a part of wages to productivity or profit, group or individual
performance, acquisition and application of skills and so on. Arrangements
to achieve efficiency may be seen also as being equitable (if they fairly
reward performance) or inequitable (if the reward is viewed as unfair).
(3) Macroeconomic stability through high employment levels and an
inordinately high minimum wage would have an adverse impact on levels of
employment, though at what level this consequence would occur is a matter
of debate. Though compensation and compensation policies are only one of
the factors which impinge on macro-economic stability, they do contribute
to balanced and sustainable economic development.
 (4) Efficient allocation of labor in the labor market. This implies that
employees would move to wherever they receive a net gain, such movement
may be form one geographical location to another or form on job to another
(within or outside an enterprise). The provision or availability of financial
incentives causes such movement.
Requirements of a good compensation plan-
1. A compensation framework supports a long term strategic vision for
compensation and implements new initiative. It will provide the needed
direction & changes will involve moving towards solving special salary
problems using innovative concepts.
2. The way we do compensation is undergoing major change towards a more
flexible and timely corporate compensation systems. The new system will
have increased delegation to managers and will be driven by the business
needs of Government and ministries.
3. It will be faster, more efficient and eliminate duplication, focus on a long
term approach to compensation management.
4. Move from being highly centralized to a decentralized approach whereby
senior managers will have increased authority to make decisions.
5. Integrate compensation with the other areas of human resource
management. And Emphasize transparency, monitoring, reporting and
accountability.
6. The vision for compensation will assist the public service in attracting and
retaining key employees.
7. Managers will have more accountability for the compensation of their
employees, and will be profiled with the required tools, systems and
support.
8. Senior managers will approve, within the framework, exceptional
compensation changes, based on sound business decisions. Senior managers
will also have authority to approve the classification levels of pre-identified
jobs within their organization.

Devising a sales compensation plan:

1. Employee motivation and performance management depend on good
systems that offer both financial and non-financial rewards (non-monetary
rewards). This performance management article applies to all organizations.
2. Constant change and high expectations are taking their toll in some
organisations, as well as in industry and government generally. Sometimes
this is shown in employee turnover. Rewards and remuneration must be
scrutinised.
 3. Employee motivation and performance are critical. Non-monetary rewards
can be as important as monetary rewards.
4. In some organisations, a multitude of different salary and pay arrangements
exist. It is time to bring these different systems into a new framework.
Employees at all levels need to have confidence in the salary administration
system. Employees want the rewards to be shared fairly and equitably. If
they are not, dissatisfaction can cause severe morale and performance
problems.
5. If they haven't done so already, leading organisations will need to establish
an improved salary administration structure. It is possible to develop a
simple structure that overcomes the difficulties of the past, yet is simple
enough for everyone in the organisation to understand. This structure can be
tied to a completely new performance management approach, including
better performance appraisal mechanisms.
6. Some industry's remuneration systems have been dominated by the
industrial relations system. Enterprise bargaining and local area work
agreements, individual performance based contracts, and the effect of
competition on organisational structures, have had a big impact.
7. A good compensation system ensures that each person receives appropriate
financial and nonfinancial recognition to account for the personal
contribution they are making and the overall value of their position to the
organisation.
Past pay systems often paid little attention to compensation. It is only in recent
years that some systems have provided for differentiation based on performance.
The concept of fair incentives should be on the agenda. An integrated system is
required such as the following diagram represents.

Document the position

Evaluate the position value

Determine remuneration range

 Conduct performance appraisal

Job Evaluation:
Commence review
Review position document

We should keep in mind certain broad principles before putting the job evaluation
program into practice. According to Kress, these principles are:
1. Rate the job and not the man. Each element should be rated on the basis of
what the job itself requires
2. The elements selected for rating purposes should be easily Change explainable in
position value &
terms and as few in number as will cover the necessary requisites
Review achievement of for every
remuneration if required
goals
job without any overlapping.
3. The elements should be clearly defined and properly selected.
4. Any job rating plan must be sold to foremen and employees. The success in
selling it will depend on a clear-cut explanation and illustration of the plan.
5. Supervisor should participate in the rating of jobs in their own departments.
Determine financial & non-financial
6. Maximum co-operation can be obtained from employees when they
reward
themselves have an opportunity to discuss job ratings.
 7. In talking to foremen and employees, any discussion of money value should
be avoided. Only point values and degrees of each element should be
discussed.
8. Too many occupational wages should not be established. It would be unwise
to adopt an occupational wage for each total of point values.

Basic Job Evaluation methods/systems:

There are four basic, traditional systems/methods of job evaluation:

(1) The ranking system;

(2) The grading or job classification system;

(3) The point system; and

(4) The factor comparison system.

The first two systems are popularly known as the non-analytical or non-
quantitative or summary systems, because they utilize non-quantitative methods of
listing jobs in order of difficulty and are, therefore, simple. The last two systems
are called the analytical or quantitative systems, because they use quantitative
techniques in listing the jobs. They are more complex and are time consuming
.
The principal differences between these methods reflect:

(1) Consideration of the 'job as a whole,' versus consideration of compassable

factors'; and

2) Judging and comparing jobs with each Other rather than assigning numerical
scores on a rating scale.

1. The Ranking System

Under this system, all jobs are arranged or ranked in the order of their importance
from the simplest to the hardest, or in the reverse order, each successive job being
higher or lower than the previous one in the sequence. A more common practice is
to arrange all the jobs according to their requirements by rating them and then to
establish the group or classification. The usually adopted technique is to rank jobs
according to "the whole job" rather than a number of condensable factors.
Merits:

(i) The system is simple, easily understood, and explain to employees.

Therefore, it is suitable for small organisations with clearly defined jobs.
(ii) It is far less expensive to put into effect than other systems, and requires
little effort for maintenance.
(iii) It requires less time, fewer forms and less work.

Demerits:

(i) As there is no standard for an analysis of the whole job position,

different bases of comparison between rates occur. The process is initially

based on judgment and, therefore, tends to be influenced by a variety of

personal biases

(ii) Specific job requirements (such as skill, effort and responsibility) are

not normally analyzed separately. Often a rater's judgment is strongly

influenced by present wage.

(iii) The system merely produces a job order and does not indicate to what

extent lore important than the one below it. It only gives us its rank or tells

us that it is r or more difficult than another; but it does not indicate how

much higher or more lit.

2. Job Classification or Grading Method

Under this system, a number of pre-determined classifications are first established

by a committee and then the various jobs are assigned within each grade
descriptions are the result of the basic job information which is usually created
from a job analysis. After formulating and studying job descriptions and job
specifications, jobs are grouped into classes or grades which represent different
pay levels ranging from low to high. Common tasks, responsibilities, knowledge
and experience can be identified by the process of job analysis. Certain jobs may
then be grouped together a common grade or classification. General grade
descriptions are written for each classification, and finally used as a standard for
assigning all the other jobs particular pay scale.

Merits:
(i) This method is simple to operate and understand, for it does not take
much time or require technical help.
(ii) The use of fully described job classes meets the need for employing
systematic criteria in ordering jobs to their importance. Since many
workers think of jobs in, or related to, clusters or groups, this method
makes it easier for them to understand rankings.
(iii) If an organization consists of 500 people holding to different jobs, the
jobs might be broken up into perhaps 5 classes, arranged in order of
importance from high to low, and described class by class. This class
description broadly reflects level of education, mental skill, profit impact
or some combination of these.
(iv) The grouping of jobs into classifications makes pay determination
problems administratively easier to handle. Pay grades are determined
for, and assigned to, all the job classification.
(v) It is used in important government services and operates efficiently; but it
is rarely used in an industry.
Demerits:
(i) Although it represents an advance in accuracy over the ranking method, it
still leaves much to be desired because personal evaluations by executives
(unskilled in such work) establish the major classes, and determine into
which classes each job should be placed
(ii) Since no detailed analysis of a job is done, the judgment in respect of a
whole range of jobs may produce an incorrect classification.
(iii) It is relatively difficult to write a grade description. The system
becomes difficult to operate as the number of jobs increases.
(iv) It is difficult to know how much of a job's rank is influenced by the
man on the job.
(v) The system is rather rigid and unsuitable for a large organisation or for very
varied work.
(3) The Points System:
This method is the most widely used type of job evaluation plan. It requires
identifying a number of compassable factors and then determining degree to which
each of these factors is present in the job. A different of points is usually assigned
for each degree of each factor. Once the degree factor is determined, the
corresponding numbers of point of each factor are added and overall point value is
obtained. The point system is based on the assumption possible to assign points to
respective factors which are essential for evaluating individual's job. The sum of
these points gives us an index of the relative significance of the jobs that are rated.

Merits:
(i) It gives us a numerical basis for wage differentials; by analysis a job
by factors it is usually possible to obtain a high measure of agreements on
job value.
(ii)Once the scales are developed, they can be used for a long time.
(iii) Jobs can be easily placed in distinct -categories.
(iv) Definitions are written in terms applicable to the type of jobs being
evaluated, and these can be understood by all.
(v) Factors are rated by points which make it possible for one to be
consistent in assigning money values to the total job points.
(vi) The workers' acceptance of the system is favorable because it is more
systematic and objective than other job evaluation methods.
(vii) Prejudice and human judgment are minimized, i.e., the system cannot
be easily manipulated.
Demerits:
(i) The development and installing of the system calls of heavy
expenditure.
(ii) The task of defining job factors and factor degrees is a time-
consuming and difficult task.
(iii) If many rates are used, considerable clerical work is entailed in
recording and summarizing the rating scales.
(iv) It is difficult to determine the factor levels within factors and assign
values to them. It is difficult to explain to supervisors and employees.
Workers find it difficult to fully comprehend the meaning of concepts and
terms, such as factors, degrees and points.
In spite of these drawbacks, this system is used by most organizations because its
greater accuracy possibly justifies the large expenditure of time and money.
(4) The Factor Comparison Method:
Under this system, jobs are evaluated by means of standard yardstick of value. It
entails deciding which jobs have more of certain condensable factors than others.
Here Evaluation Committee selects some 'key' jobs for which there are clearly
understood job descriptions and counterparts in other organisations, and for which
the pay rates are such as are agreed upon and are acceptable to both management
and, labor.
Under this method, each job is ranked several times – once each condensable
factor selected. Then these ratings are combined for each job in an over-all
numerical rating for the job.

Merits:
(i) It is a systematic, quantifiable method for which detailed step by step
instructions are available.
(ii)Jobs are compared to other jobs to determine a relative value.
(iii) It is a fairly easy system to explain to employees.
(iv) There are no limits to the value which may be assigned to each factor.
(v) The plan does not require a translation from points to money. It involves a
comparative process wherein jobs are priced against other jobs rather than
against some established numerical scale.
(vi) The reliability and validity of the system are -greater than the same
statistical measures obtained from group standardized job analysis plans

Demerits:
(i) It is costly to install, and somewhat difficult to operate for anyone who
is not acquainted with the general nature of job evaluation techniques.
(ii)Wage levels change from time to time, and their minor inconsistencies may
be adjusted to bring all the jobs into alignment. Jobs in which discrepancies
are too wide are discarded as key jobs.
(iii) Money rates, when used as a basis of rating, tend to influence the
actual rate more than the abstract point.
(iv) The system is complex and cannot be easily explained to, and
understood by, every day non-supervisory organizational employee.
(v) The use of five factors is a growth of the technique developed by its
originations. Yet using the same five factors for all organizations and for all
jobs in an organization may not always be appropriate.
Compensation generally comprises four elements: -

(i) Salary and allowance- Salary is supposed to be determined through

evaluation and serves as the basis for other types of benefits. Bonus plays an

important role in today's competitive executive payment programs.

(ii)Bonus- as many bonus systems as there are companies using this form of

executive remuneration. If bonus constitutes short-term benefit, stock

options are long-term benefits offered to executives. Stock options are

attractive to shareholders too.

(iii) Incentives-

(iv) Perquisites- It contributes a major source of income for executives.

Straight salaries, bonuses, stock purchase plans and profit-sharing are used to
compensate major executives.

Types of compensation plans:

1) Straight salary
2) Straight commission
3) Combination of salary and commission
Straight salary: Once it was popular system in preglobalisation era but now due to
increasing culture of MNCs made it less important. As per statistics around 20%
organizations use this. It is most common among industrial goods companies since
it’s compatible with the selling job that requires extensive missionary or
educational work, when sales people service the product or give technical or
engineering advice, or when sales people do considerable sales promotion work.
Also used if non-selling tasks costs large amount of salesperson’s total time. It is
also commonly used for people involved in trade-selling. Sometimes for driver-
sales people selling liquor, beverages, milk, bread etc.
Advantages:

(i) Provides strong control over sales personnel

(ii)Management can direct their activities along the most productive lines
(iii) Economical to administer
(iv) Accounting costs are lower
(v) Stability of income
(vi) Less burden of planning routing and scheduling

Disadvantages:

(i) Many sales people do only an average rather than an outstanding job
(ii)There is tendency to under compensate productive people and
overcompensate poor performer giving rise to turnover and increased
cost of recruiting
(iii) Maintaining morale
(iv) Difficult to adjust to changing conditions during downswings
(v) During upswing, sales people will not be ready to exceed previous sales
records by any large amount
(vi) Through good administration, these weaknesses can be overcome
(vii) Measuring average, good and poor performance is difficult