Last month we talked about some basic questions that needed to be answered before developing a compensation plan for the people that will take your message to the market... the sales force.

Here, we will review the basic plans as well as their advantages and drawbacks. Although there are many compensation systems, they all have their origins in one of the following:

1. Salary. This is the simplest form of compensation, You agree to pay your sales staff a set amount of money on a periodic basis and in return you expect them to accomplish a defined task.

2. Salary and Bonus. This system incorporates the base of a salary but adds some incentive. By exceeding the defined task, the sales person is able to increase income in the form of a bonus, which is set and paid on a periodic basis.

3. Salary and Commission. Many feel this is the "best of both worlds". Usually a smaller base pay with the potential for much greater income based on performance.

4. Straight Commission. A percentage of the business generated.

How do you know which is best for you? What are the strengths and drawbacks? Let's take a look.

Salary Plans

Advantages: Greater management control... steady, secure income for sales force... treats sales force same as other employees... establishes fixed cost for company... helps promote company loyalty.

Disadvantages: Doesn't attract top producers... no incentive for extra effort... often requires closer supervision... little distinction between compensation for productive and nonproductive efforts... no incentive for balanced sales mix... usually results in higher direct sales costs... requires up-front working capital.

Commission Plans

Commission plans require a little more thought and planning than salary systems. Often the question of a draw (an advance against future earned income) comes into play. Draws can be recoverable or nonrecoverable. Regardless of the existence of a draw, consideration must be given to the basis on which the sales person will be paid; on submission of the signed sales order, a purchase order or other proof of sale,,, open shipment of the product or service... upon receipt of payment from the client. These factors will determine the sales/payment cycle. As the length of the cycle increases, the need for some type of draw may be required as these elements of the cycle are often not under the direct control of the sales staff.

Advantages: Pay is tied to performance... rewards self-starters, who usually need less supervision... provides sales force with incentive for maximum earnings... can be easy to understand and communicate... sales costs are fixed... reduces initial investment in sales costs.

Disadvantages: Often emphasizes sales volume over profit... sometimes difficult to arrange territories or accounts on an equitable basis... earnings may fluctuate with economy causing high turnover during slow periods... little loyalty is developed... sales force gravitates toward short term, personal goals... tendency to sell products without regard to mix or profit... client service may suffer at the expense of "getting the deal"... retraining costs can be high.

Combination Plans

As stated earlier, there are combinations of salary and commission. Careful thought should be given to these plans. While they are very attractive in some ways, they can be self-defeating in others.

Advantages: Sales team reaps best of both plans... steady base and potential for high additional earnings... permits a greater degree of management control... sales force is often compensated for non-selling activities such as training or service... management has greater latitude in moving sales people to achieve specific goals... plans can be tailored for individuals, products or markets... tends to balance the needs of both company and the sales force.

Disadvantages: Plans often become to complex to understand and may promote distrust among staff... low morale and high turnover result if split is out of balance... salary is often too low to hold sale staff during slow times... higher administrative costs... tendency to design plans to cure all ills at once... frequent reviews and revision required.

As you can see, compensation plans are not something to be taken lightly. They can be, and in many cases are, the key to the success of your sales and marketing efforts.