Why Offer a Choice?

Most companies offer only one compensation plan to sales representatives. While the commission may vary depending on the types of incentives offered and whether quota has been met, the basic plan is the same for everyone.

That's not the most effective way to structure compensation.

Companies that only pay one way restrict their choice to people who are willing to accept that form of compensation. For example, if you pay a base plus commission, you are turning off people who are risk-averse and want the security of a straight salary - as well as risk-loving top producers who want the higher compensation that usually results from a 100% commission deal.

Many managers rationalize offering only one plan by saying that being on commission makes sales reps hungry, and that's necessary to motivate them. While it may be true for some members of your sales force, it's just not true for everyone.

Someone with children in college may need the security of a higher salary, at least temporarily, while someone with fewer fixed expenses may prefer to take on more risk with a larger percentage of incentive-based compensation.

By offering a choice, you can expand your labor pool. Not only can you include people who have a greater or lesser tolerance for risk, but you can also appeal to a wider variety of personality types and demographic groups - which can strengthen your sales force.

Offering a variety of plans also lets you design compensation so that people receive – and pay for – the support and services they need from the company (such as training, office space and administrative support), without having to pay for things they may not want (like a company car).

The bottom line is that when you allow representatives to match their compensation plans to their needs and their tolerance for risk, you are able to motivate far more effectively. The result is a happier and more productive sales force.