are a company's ambassadors to the world. They actively promote
the company and its products and services. They are the front line
between the company and its customers, and are typically the driving
force of revenues - top-line company growth. These employees have
a direct impact on how the marketplace perceives their employer
and its products.
way salespeople conduct themselves is often a reflection of the
company's sales compensation program; and how well the company does
is often a reflection of the effectiveness of its commission program.
A well designed sales compensation program focuses salespeople on
activities that support the company's business objectives, and,
in turn, rewards those salespeople for their contributions.
salary, commissions, and sales prizes make up the bulk of a typical
salesperson's compensation package, but the specifics vary by industry.
Stock options grants to salespeople are becoming more widespread
commission is typically based on either a percentage of sold revenues
or profit margins. Commissions usually account for 30 to 50 percent
of a salesperson's cash compensation package, which means that commissions
routinely run between 43 and 100 percent of base pay. The percentage
that commissions contribute to a salesperson's compensation depends
on factors such as required technical knowledge, sales cycle time,
product profitability, and whether the sale is dependent on the
skill of the salesperson.
will account for a larger portion of pay when the sales cycle is
short, the sales highly profitable, and sales dependent on the skills
of the sales person. Commissions play a smaller role when the sale
requires greater technical knowledge and when the sales cycle is
is not to say that total compensation is necessarily lower for salespeople
with greater technical knowledge or those selling products with
slower sales cycles, rather, the mix of pay is weighted more toward
base pay and less toward commissions so that the total cash pay
earned is reasonable. Companies don't want to penalize salespeople
for selling products with less commission potential if those products
are an important part of the corporate strategy. Similarly, if a
salesperson is responsible for a product that's an easy sell, the
company wants to make sure there is the maximum incentive to sell
as much as possible - therefore, less emphasis on base pay and more
emphasis on commissions.
can vary within a commission plan, reflecting the priorities of
the company. If the company wants to build market share, it may
pay larger commissions for selling products to new clients. Commissions
are also higher when new products are introduced., especially if
they are more profitable. Clearly, commission plans are constructed
with great care. A poorly designed plan can have unintended results
such as rewarding employees for the sale of new products that cannibalize
more profitable ones.
commission plans place no limits on what a salesperson can earn.
In some instances, if a certain sales threshold has been met, the
commission percentage can increase. Regardless, commissions are
one of the simplest and most direct forms of pay-for-performance.
Underlying the commission plan is one of the appeals of a sales
position: unlimited income potential.
Dwight Ueda, Salary.com contributor