<i>Dear Workforce</i> How Do I Compensate a Sales Manager Who&#8217;s Losing Commissions

May 21, 2004
A Dear Fair-Minded:

When used alone, commission-based sales programs help salespeople focus on their main objective: selling. Companies use them to:
  • Start new markets, where goal-setting is difficult
  • Reward salespeople who don't have management duties
  • Make sales expenses fixed vs. variable
However, these same features may cause your commission plan to break down over time. For example, a commission-only plan makes it difficult to add non-selling duties to a salesperson's job function. Most sales managers view additional managerial duties as a burden that hinders their ability to sell (which is their sole source of income). The result: a hesitant sales manager who minimizes time on everything except selling.
If your sales manager's job has grown more complex, perhaps it's time to offer a combination of base pay and incentive pay. The base will reward him for performing a range of core job responsibilities, which may include planning, business management and training. If your sales manager is responsible for a sales team, the base should assume a minimum level of sales-team performance. This minimum, or threshold, must be reached before an incentive is paid. This system allows the manager to emphasize selling while also helping to build and manage the business.
Your incentive mechanisms may also have to change with specific sales-management jobs. If your sales manager does some selling in addition to managerial duties, two commissions may be appropriate. One would be paid for how much he sells, while another is based on the percentage volume of the sales force.
For a more fully developed sales-manager job, consider the strategy used by other organizations: introduce objective-based, or bonus, mechanisms to reward him for a variety of performance measures. These bonus structures recognize a sales manager's ability to boost profitability, control expenses and efficiently manage personnel.
The right answer for your company depends on the specific responsibilities of your sales manager. The key is to recognize the unique roles he plays and his potential value to your organization. Once you do that, you can structure a rewards system to match.
SOURCE: Mark A. Donnolo,Sibson Consulting, New York City, New York, June 25, 2003.
LEARN MORE: ReadCan Pay for Performance Really Work?
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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