Requirements of a Good Sales Compensation Plan

A good sales compensation plan meets seven requirements. First, it provides a living wage, preferably in the form of a secure income. Individuals worried about money matters do not concentrate on doing their jobs well. Second, the plan fits with the rest of the motivational program—it does not conflict with other motivational factors, such as the intangible feeling of belonging to the sales team. Third, the plan is fair—it does not penalize sales person­nel because of factors beyond their control—within the limits of seniority and other special circumstances, sales personnel receive equal pay for equal performance. Fourth, it is easy for sales personnel to understand—they are able to calculate their own earnings. Fifth, the plan adjusts pay to changes in performance. Sixth, the plan is economical to administer. Seventh, the plan helps in attaining the objectives of the sales organization.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.