sales incentives

8/4/2019 Sales Incentives

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Variable Pay: Incentives for

Performance

Variable

Pay

Assumptions

Some people perform better

and are more productive than

others

Better performing employees

should receive more

compensation

Some jobs contribute moreto organizational success

than others

Part of compensation should

be tied directly to

performance and results


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Developing Successful

Pay-for-Performance Plans

Pay-for-

Performance

Plans

Link strategic goalsand employeeperformance

Enhance resultsand rewardemployeesfinancially

Reward andrecognizeemployee

performance

Promoteachievement ofHR objectives


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Successful Variable Pay Plans

Effective Incentive Plans

Plan Fits the

Organization

Plan Rewards the

AppropriateActions

Plan effectively

Administered


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Why Variable Pay Plans Fail

Plan incentives are

not seen as desirable

Plan doesnt reward

doing a good job

Plan doesnt motivatePlan rewards

teams/groups rather

than individuals

Plan doesnt increasebase pay

EmployeesView of Variable Pay

Plan


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Developing Successful

Incentive Plans

Develop clear, understandable plans

that are continually communicated.

Use realistic performance measures.

Keep plans current and linked to

organizational objectives.

Link results to payouts that recognize

differences.

Identify variable pay incentives

separately from base pay.

Successful

Incentive Plans


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Individual Incentives

Necessary Conditions ForIndividual Incentive Plans

Individual

performance must

be identified

Individual

competitiveness

must be desired

Individualism mustbe stressed in the

organizational

culture


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Categories of Variable Pay Plans


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Individual Incentives

Piece-Rate SystemsStraight piece-rate system

Differential piece-rate system

Bonus Spot Bonuses

Special Incentive Programs

Performance awardsRecognition awards

Service awards


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Purposes of Special Incentives


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Why Organizations Establish

Variable Pay Plans for

Groups/Teams

Group/Team-

Based VariablePay Plans

Improveproductivity

Tie pay to teamperformance

Improvecustomer service

or productionquality

Increaseemployeeretention


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Design of Group/Team

Incentive Plans

Group/Team Incentive Plan

Issues

Distribution of

Group/Team

Incentives

Timing of

Group/TeamIncentives

Decisions AboutGroup/Team

Incentive

Amounts


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Group/Team Incentives

Distributing Rewards Same-size reward for each member

Different-size reward for each member

Problems with Group/Team Incentives

Rewards in equal amounts may be perceived as unfair

by employees who work harder, have more capabilities, or

perform more difficult jobs.

Group/team members may be unwilling to handle

incentive decisions for co-workers.

Many employees still expect to be paid according to

individual performance.


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Types of Group/Team

Incentives

Group/Team Results

Self-funding pay plans for groups/teams that reward

through improved organizational results on the basis

of group output, cost savings, or quality improvement.

Gainsharing (Teamsharing or Goal Sharing)

The sharing with employees of greater-than-expected

gains in productivity through increased discretionaryefforts.

Improshare

Scanlon Plan


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Organizational Incentives

Primary Objectives

Increase productivity and

organizational performance

Attract or retain employees

Improve product/service

quality

Enhance employee morale

Drawbacks

Disclosure of financial

information

Variability of profits from yearto year

Profit results not strongly tied

to employee efforts

Profit Sharing


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Framework Choices for a Profit-Sharing Plan


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Employee Stock Plans

Stock Option Plan A plan that gives employees the right to

purchase a fixed number of shares of company

stock at a specified price for a limited period of

time. If market price of the stock is above the specified

option price, employees can purchase the stock and

sell it for a profit.

If the market price of the stock is below the specified

option price, the stock option is underwater and is

worthless to employees.


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Employee Stock Plans

Employee Stock Ownership Plan (ESOP)

A plan whereby employees gain significant stock

ownership in the organization for which they work.

Advantages

Favorable tax treatment forESOP earnings

Employees motivated by their ownership stake in the firm

Disadvantages

Retirement benefit is tied to the firms future

performance

Management tool to fend off hostile takeover

attempts.


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Types of Sales Compensation

Plans

Salary-Only

All compensation is paid as a base wage with no

incentives.

Commission Straight Commission

Compensation is computed as a percentage of sales in

units or dollars.

The draw system make advance payments against future

commissions to salesperson.

Salary-Plus-Commission or Bonuses

Compensation is part salary for income stability and part

commission for incentive.


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Effectiveness of Sales Incentive

Plans

Frequent changes in sales plans

An entitlement culture

Pay without performance

Poor quota setting

Small differences in pay for top and

bottom performers

Causes of

Ineffectiveness

in Incentive

Plans


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Executive Compensation

Executive Salaries

Executive Benefits

Executive Perquisites

(Perks)

Annual Executive Incentivesand Bonuses

Performance Incentives:

Long Term vs. Short Term

Elements of

Executive

Compensation


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Reasonableness ofExecutive

Compensation

Executive

Compensation

Considerations

and

Concerns

Would another company hire this

person as an executive?

How does the executives

compensation compare with that

for executives in similar

companies?

What would an investor pay for

the level of performance of the

executive?

Is the executives pay consistent

with pay for other employees

within the company?


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Common Executive Compensation Criticisms

sales incentives

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