One decision on salesforce compensation relates to the proportion of fixed vs. v

Question

One decision on salesforce compensation relates to the proportion of fixed vs. variable (per performance) pay.

The fixed part of the compensation comes in the form of a salary (does not depend on the sales performance). The variable part can have multiple forms, with the most common one being the commission (where the sales person receives some % of the sales revenue generated).

What are some factors to consider when deciding how much of the sales agent's compensation should come in the form of a salary and how much should be in the form of commissions?

Explanation / Answer

When deciding compensation for sales agents ' , following factors needs to be consider.

1) performance of sales agent : Based on individual sales person's performance or ability to generate profit from the market for firm. Performance based compensation is fair method to decide sales agent's compensation.

2) Market Value: Fix sales agents' salary and perks as per industry standards or at par with competitors. When employees ask for salary rise, they too are aware about market/ industry pay structure.

3) Expectation and responsibilities : Communicate sales agent's performance with reference of expectation and responsibilities. These factors are telling of an employee's work ethics and future success.

Ideally when firms decide compensation of sales agents , based on hierarchy of sales department, compensation amount varies from 10-30 % of profit generated by individual sales agents. I.e. If sales agent A has generated profit of $ 4,00,000 , compensation will include fixed salary + variable pay ( $ 2,00,000).

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