How Sales Compensation Plans Fit into Employee Benefit Programs

Using Sales Compensation to Boost Benefit Programs

Sales Compensation Employee Benefits
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Is a sales compensation plan something your organization uses? In the area of employee benefits, many companies use sales compensation plans as a way to motivate their sales teams and other employees to perform at their peak levels on a routine basis. Sales compensation plans most often include a base salary and benefits combined with a sale commission bonus, or they may be based solely on commissions only.

Sales Commission Plan Basics

It's important to note that the compensation within a plan will generally vary throughout the year based on the level of incentives, bonuses or commissions paid to the employees. The sales structure may depend on each employee’s ability to bring in new business or to grow existing business through up-sales.

Companies look at a mix of four considerations when creating sales compensation plans, including:

  1. Incentives, benefits and base salary given to each employee 
  2. The level of pay for the job type and responsibilities  
  3. Performance-payout relationships and their connection to sales
  4. Measures of performance within the organization for sales teams

Lets take a closer look at what makes up a standard sales compensation plan and how this model fits into the employee benefits offering.

When are Sales Compensation Plans Offered?

As a manager, HR director, or sales professional, you might be wondering when sales compensation plans are offered?

For the most part, they are introduced to sales employees when they are hired as part of a sales team. It's written into their employment contracts during recruitment. The reason for this is that many sales employees will receive a base salary, but it will be low due to the compensation package offered.

This helps the employees know what they are getting into and how hard they will have to work to earn the salary they want.

Types of Sales Compensation Plans

There are a number of different sales compensation plans available for companies to utilize today. They include straight salary compensation plans, commission based plans with a salary component, territory volume compensation plans and profit/margin revenue based sales compensation plans.

The Straight Salary Plan is starting to become rare today, but can still be offered by businesses that do not have a lot of extra capital and it takes the guesswork out of paying employees. It provides employees with only salary and no incentives or commission on sales they make. However, they may be eligible for other perks and generous salary increases over time.

Commission Based Plans with Salary Component are the most common types of sales compensation plans out there. These plans make the employee acquire most of their compensation via commission. The way it works is that a base salary of about half of what a sales professional can expect to earn is offered, and a commission bonus is tacked on based on the sales generated during a specific time period (most often a month).

The base salary is just enough to cover general expenses of working, but not enough that the sales professional gets complacent.

Territory Volume Compensation Plans occur when sales employees work in a culture that is team-based. The compensation is calculated by finding out territory volume. Sales are added up and all commissions are split equally among sales professionals instead of allocated to just one individual. This can support long-term growth vs. one time sales goals.

Profit/margin Revenue Based Sales Compensation Plans are most often found in small business startups since they reward employees based on how the company performs. Therefore, while sales professionals can influence the growth of the company, they do not earn unless the entire company produces a profit. This model is often seen among silent partners and sales teams who are just introducing a new service or product to the world.

Do Sales Commission Plans Work Well When Offered with Other Benefits?

The answer to this question varies based on the type of plan being used by your company, the group of sales employees at your company and how successful the company has been in the past with the sales compensation plan.

If your company is still operating a straight commission sales compensation plan, it needs to be changed immediately. This is a completely outdated plan that tends to fail at most companies today. These plans tend to support the status quo at your company and no one else because employees will plateau once they meet their compensation needs to live comfortably.

In terms to their connection with other types of employee benefits, sales compensation can be a great way to boost a small benefit offering. On top of providing required minimum benefits, as set forth by the Affordable Care Act, employers can boost compensation with a combination of any of the above sales compensation methods. This gives employees added incentives to perform well, while the company continues to grow.

The bottom line here is that companies must decide which type of sales compensation plan is best for their sales team. They also must decide if the employees they have on the books right now will be able to motivate themselves enough to record incredible sales numbers for the company.

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