'Sales team remuneration structure - Best Practices'

In the ever changing business environment, and even more so in the wake of the current recession, the role of Sales Team has become vital for many organisations. This is especially true for businesses operating in certain industry sectors such as FMCG and Pharmaceutical, where sales are largely driven by direct interaction between the sales person and the organisation's primary customers.
The Sales Team becomes the company's life blood; as the team's performance is directly linked to the achievement of strategic and financial targets. In order to achieve these though, the Sales Team has to overcome enormous challenges in its day to day activities. These challenges are exasperated by recent events in both the FMCG and Pharma sectors.
The pharmaceutical sector has long been afflicted by a government freeze in retail prices leading to closure of major MNCs last year. The consumer sector continues to face tough competition, worsening security situation and financial meltdowns. In such a situation, it becomes imperative for organisations to not only keep its sales team motivated but to also retain its key talent, while keeping profitability and sustainability over long term as a prime goal.
Employee retention is one of the key challenges faced by the organisations in this regard; and even though it is a common problem across all functions, it has been observed that the Sales function generally has the highest employee turnover, especially at the lower end of the sales force staffing levels.
There are several reasons for this trend; a very evident one and perhaps the most important among all is the fact that a sales team member goes out in the market place on a regular basis and comes face to face with the representatives from competition. In such a scenario, it is only natural to develop a tendency of comparing the benefits one is receiving to what the competition has got to offer.
Furthermore, he is under constant surveillance from the next tier of the competition as well, and if he is a high performer, it is only a matter of time before he receives an offer worth considering. When that happens, there is little, other than a market based competitive remuneration package that may retain him.
Another key challenge faced by the Sales management is to keep their team motivated; and the key determinants of motivation are the benefits and rewards the employee receives for his efforts.
The research conducted on the subject has one common finding; ie the total remuneration an employee receives is as much a matter of perception as it is of numbers. Therefore, the challenge for the management is to link performance with reward in such a way that it becomes a driving force for the team members.
It may thus be concluded that the compensation and reward structure in place for the Sales Team is of paramount importance in its efficient and effective management, and the subject requires focused attention and specialised analysis. This is chiefly because of the unique nature of the sales team remuneration structure, observed and realised during the course of the data collection for the Compensation Yearbook (Cyr) and the Sales Team Remuneration Survey (STRS) , and the extensive client interaction which took place during the process.
The difference between the two forms of compensation is in the form of reimbursements for expenses incurred by the Sales Team employees during their field visits, which even though is generally based on actual expenses incurred, in actual fact becomes a critical reimbursement factor for them, as most of their time is spent in the market place to carry out sales activities.
So much so that in most cases, this amount does not just remain a reimbursement for the actual expenses; instead, companies model the expense reimbursements such that it becomes a motivational tool resulting in additional savings for the employee and essentially becoming a part of his salary. It has been found that while it is important to keep a check on such reimbursements so that the facility is not abused, companies realise its promotional and motivational impact.
Promotional as the efforts involved constitute a major sales push and involve officers from all levels of the sales force; and motivational as the sales force is tempted to industriously go out on these field trips so they can make some extra money. Hence, the total remuneration of field force staff may be thought of as comprising three parts.
1. The first part is the normal salary and benefits constituting basic salary, house rent, utilities, etc which are essentially fixed.
2. The second part consists of those elements that are variable such as incentives, bonuses and sales commissions.
3. The third part, as discussed above, which is not a standard remuneration structure as for other functions, is the total expense reimbursements that the employee becomes eligible for when he goes out in the field. Though not being a part of salary, it is considered by the organisations as additional incentive so that the sales person ends up with a little more money than he actually spends, and is motivated to make more field visits.
The challenge for the management is to analyse the relationship between these three forms of compensations, their ideal mix, as well as various other psychological factors such as its effect on employee motivation, etc.
Though a number of different policies and practices have been adopted by organisations in this regard, which to a limited extent are shared in the surveys as well, the Sales compensation models being followed essentially remain confidential, both in terms of qualitative and quantitative aspects.
Irrespective of this however, the key objective for any organisation, remains the same, ie to have a solution which is not only beneficial for the employee and keeps him motivated but is also efficient and cost effective.
The study of various models, analysis of empirical data, and discussions with human resources and sales management experts, led us to the conclusion that the twin cores of any truly effective sales compensation plan depend upon the profitability of each company's various products and services, and the desired behaviour the company expects from its sales and field force staff.
The best in class companies model their compensation plans around these cores with a conscious choice for the mix of the three elements that exist in Sales Team's compensation. It may be noted that a basic overall structure is developed in line with the companies long term goals, while the mix is frequently tweaked to align the objectives with the short term sales targets.