Not having to work for a large portion of their incentive pay weakens the motivational power of employees’ incentives.
In reality, however, many of the commissions and bonuses companies pay sales people aren’t truly at risk — and as a result, the company may be spending money in ways that produce little in the way of extra effort or motivation.
Pay mix – the ratio of fixed pay (base salary) to variable pay (incentive or at-riskpay) – is commonly used to gauge the extent to which a sales compensation plan motivates sales people to drive current results. A 60:40 pay mix is the average for sales forces, but the mix varies across industries and sales roles.
A very aggressive mix (say 0:100) is common in industries such as insurance that use independent contractors as sales agents. A less aggressive mix (say 75:25) is typical in industries such as pharmaceuticals that want sales people to focus on customer education, and for technical sales jobs that have a large problem-solving component. Within an industry or company, pay mix often varies across sales roles. One technology company targeted a 50:50 pay mix for sales people in new customer acquisition (CA) roles, but a 70:30 mix for sales people in account management (AM) roles. This encouraged the CAs to ‘hunt,’ while the AMs focused on cultivating relationships with existing customers. Generally, it’s believed that an aggressive pay mix (i.e. a high second number) motivates sales people to drive short-term results.
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