ADVANTAGES:
• Easy to understand and administer.
• Encourages customer service.
• Protects income in situations where sales results vary dramatically due to conditions beyond the incumbent's control.
• Facilitates team selling situations by eliminating the need to split commissions.
• Reduces the potential for problems in situations requiring substantial input to the selling process by nonsales personnel.
• Provides management flexibility in altering priorities.

DISADVANTAGES:

• Limits management's ability to use compensation as a tool for shaping behavior.
• Increases fixed selling costs.
• Lowers the incumbent's incentive to dramatically increase business results.
• May attract security-oriented employees who tend not share any of the risks of the business.
• Provides no attraction for proven, aggressive "stars."
• Results in "stars" subsidizing "underachievers."

ADVANTAGES:
• Allows management to attract high-performers willing to share the risks of the business.
• Forces nonperformers to leave.
• Makes compensation costs variable.
• Easy to understand and administer.
• Encourages maximum sales effort, making it very useful in penetrating new and familiar markets.
• Minimizes the need for supervision.

DISADVANTAGES:

• Severely limits management's flexibility to direct incumbents' efforts, to require nonselling activities, modify territories, influence levels of performance, relocate or promote salespeople into nonselling positions.
• Encourages a short-term orientation, possibly at the expense of strategic objectives.
• Enables incumbents to obtain a high level of income from mature territories without pursuing improvement opportunities.
• Fosters an incumbent's pursuit of the greatest payoff for the least effort to maximize income.
• Can create conflict between the incumbent's dependence on volume and the company's ability or willingness to fill every order.
• Generates little loyalty.

ADVANTAGES:
• Attracts people who have skills beyond that of pure selling.
• Enables a company to compete with employers offering alternative careers.
• Helps retain employees during tough times while maintaining a variable element in the cost of sales.
• Permits management to legitimately include non-sales activities in the sales job.
• Emphasizes pay for performance.

DISADVANTAGES:

• Can become so complex that it is difficult to understand and administer.
• Can dilute emphasis on key results because of a tendency to try to control too many specific activities through either the commission or the merit increase process.

ADVANTAGES:
• Provides flexibility in balancing short-and long-term objectives and selling and nonselling objectives.
• Enables management to change territory structure and sales goals easily from year to year because the incentive feature allows for easy calibration of earnings potential, sales objectives, and earnings results.
• Provides flexibility in determining the amount of incentive to award to the participant.

DISADVANTAGES:

• If the program is not communicated effectively, allows suspicion over goal setting, to the extent that the sales force distrusts management.
• Can create administrative difficulties because incentive plans are usually more complex to administer than commission plans. Greater effort is required in performance planning.
• If poorly designed, can result in a complex array of goals and payment opportunities that dilute the importance of key objectives.
• If the plan is not properly designed, can enable some participants to succeed on incentive-compensated, non-sales objectives alone while generating no sales revenue.

ADVANTAGES:
• Create enthusiasm, hopefully resulting in extra effort.
• Give winners a psychological boost.
• Inexpensive relative to the return.

DISADVANTAGES:

• Addictive if there are too many; loss of excitement.
• Competition with the sales compensation plan which can weaken points of emphasis or focus.
• Create more losers than winners that can result in loss of credibility.
• Can encourage sales behavior in conflict with strategic priorities.

For more information contact John G. Brau, SPHR at: JohnB

The Quorum Group
John G. Brau, SPHR
P.O. Box 2121
Alvin, Texas 77512-2121
Tel.: 281-393-1100
Email: JohnB

Go to the new Quorum web site.

Copyright © 1999 - 2008, The Quorum Group
Last Update: September 02, 2008