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17 Key Features of an Ideal Compensation Plan (Explained)

Updated on: October 23, 2019 Leave a Comment

A ideal or good compensation plan from both the salesman’s point of view and of the management.

Features of an Ideal Compensation Plan
Features of an Ideal Compensation Plan

Page Contents

  • Essential Features of an Ideal Compensation Plan
    • 1. Simple
    • 2. Steady Income
    • 3. Based on the Merits
    • 4. Lower Administrative Cost
    • 5. Continuous Incentive
    • 6. Flexible
    • 7. Fair to Salesforce
    • 8. Fair to Management
    • 9. Competitive
    • 10. Effective Control
    • 11. Miscellaneous

Essential Features of an Ideal Compensation Plan

An ideal or good compensation plan has the following essential features or characteristics:

1. Simple

The compensation plan should be simple, easy to understand and calculate according to the sales positions and territorial assignments.

2. Steady Income

The compensation plan should be such which could provide regular income to the Salesforce.

Related: 21 Benefits and Limitations of Personal Selling (Explain with Examples).

3. Based on the Merits

The compensation plan should be based on the individual merits, ability, and efficiency of the salesman.

It should have the magnetic power of attractive able and efficient salesman to this Enterprise.

4. Lower Administrative Cost

The compensation plan should bear the minimum administrative cost so that the same may be implemented by the Enterprise.

5. Continuous Incentive

The compensation plan should provide continuous incentives to salesmen so as to evoke loyalty, sincerity and hard working on the path of a salesman.

For instance, it should have the provision of Commission on sales besides the salary.

Related: 37 Essential Qualities of a Successful Entrepreneur (Must Know).

6. Flexible

The compensation plan should be flexible so so that it may provide satisfaction to all types of a salesman working on different posts in different areas.

7. Fair to Salesforce

The compensation plan should be such in which the salesman might feel that he is paid sufficiently in relation to his qualifications, experience, ability, cost of living and his efforts, etc. It must have provision for promotion.

common type of sales compensation plan
The common type of sales compensation plan

8. Fair to Management

The compensation plan should also be fair to management, like, related to the volume of sells and be reasonable to the work turned out by the salesman.

Related: 16 Need and Importance of Business Environment (Updated).

9. Competitive

The compensation plan should be competitive.

It should develop the spirit of competitions amongst the salesman.

The compensation plan should provide superior income to Superior performers.

10. Effective Control

The compensation plan should provide effective control of management on the salesman.

“Management likes a plan which facilitates control over how salesman spends their time”.

It should be possible for the sales manager to bring to book a salesman who is not complying with the instructions and wasting away his efforts in un compensation transactions.

Related: Top 12 Techniques of Decision Making (Step by Step).

11. Miscellaneous

Besides the above, an ideal compensation plan should also:

  1. Be helpful in increasing sales.
  2. Evolve confidence of salesman.
  3. The effect of promptness in payments.
  4.  Distinguish between performing different tasks and achieving results and goals.
  5. Develop active cooperation amongst the salesman, and
  6. Raise the morale of the salesman.

Bonus:

  • How to Choose Right Sales Promotion Programs (Explained)
  • Employee Motivation: Meaning, Importance, Methods, Theories

Thus, now you know the features of an ideal and effective compensation plan.

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