The Pros and Cons of Sales Compensation
Sales compensation is a way of rewarding sales for the efforts they put into making successful sales for the company. Since sales teams are in direct contact with customers, sales becomes the bridge that connects the company to their clients. It is crucial that sales teams are dynamic and know how to play their part in satisfying the company’s goals and objectives. A sound sales compensation plan is what the employees look forward to as a reward for their efforts. Typically, sales compensation is paid as an addition to the basic salary (unless it’s a commission only job), and are usually calculated as a percentage of the total sales volume.
Although some find compensation plans a great way to provide incentive to employees for producing good results, others find them largely unreliable. Some of the pros and cons of sales compensations have been listed and described below.
First, the fact that sales compensations are proportional to the quality and quantity of sales deals, encourages the employees to push their boundaries and produce their best. It helps the employees to realize their potential. In comparison to a fixed salary job where the sight of a secure fixed income, no less and no more, has the employees do just what is required. A compensation plan on the other hand makes them strive for more.
Furthermore, the effort employees put in makes the organization better judge their true capabilities, which is instrumental while making appraisals and promotions. Such compensation plans are helpful in reflecting the maximum capacity a sales team member has, making it easier to judge whether keeping him is viable in the long run.
Moreover, compensation plans emphasize individual effort, minimizing the chance of any employee becoming a free-rider on the team. When the sales team knows that the compensation for each is going to be equivalent to how much outcome each one produces, they will inevitably work harder.
Sales compensation plans often come off as unreliable in the longer run. Since they are immediate performance based, employees may not be able to retain the same level of high performance due to motivational issues, which will impact their paycheck as a result. Also, compensation plans make the employees see short term and forces them to produce instant results which negatively impacts their thinking and foreseeing abilities, as well as long term objectives of the organization. Developing a long term relationship with the organization then takes a back seat.
Additionally, sales compensation can’t be controlled by an employee because of certain unavoidable external factors. If your company is going through a tough time in terms of finances and economics, an employee may not be able to sell any of the products or services because of reputational issues. Not being able to sell enough because of reasons like insufficient advertising, economic slump or industrial issues directly affects how much the salespeople is able to sell, consequently impacting the money they make. Because of these factors, employees are often left in a state of uncertainty regarding their income.
With CallidusCloud Commissions, you can have your own sales compensation/commission software suited to your specific needs and objectives of your business. Read more on our commissions brochure or watch our product tour to learn how we can help you improve your sales compensation plans.
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Top 10 Questions to Ask Your ICM Vendor
- How do I settle comp disputes?
- How many people can be credited for a single sale?
- Can your application keep up with my fast growing needs?
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