Sales Compensation Strategy

Abstract

Sales compensation is of primary concern to both sales employees and sales organization as it is central to their working relationship. Compensation strategy decision regarding pay level (total earnings generated) and pay mix (relative proportion of fixed pay and variable pay) are both vital in sales compensation plan. This research explains major attributes of pay level and pay mix design of sales organization and identifies various factors influencing it. Advantages and disadvantages of fixed as well as variable pay are presented in the article. It also provides analytical frameworks and models for calculating optimal pay level and pay mix. An effective compensation plan through optimal design of pay level and pay mix successfully balances the needs of salespeople, sales organization and customers simultaneously to maximize value of the organization. Finally, research concludes with an illustration to provide methodology for calculating optimal value of pay level and pay mix in a sales organization.