Base compensation on sales force contributions

Philosophy

CompensationMaster's approach to systematizing compensation is based on strategies that have been proven to offer significant benefits.

Key components to this approach are:

Allocate expenses fairly among sales professionals

The next step is to allocate the expenses fairly among the sales associates. You need to make everyone responsible for contributing the same fixed amount.

Anything else penalizes top producers. It is a disincentive to selling more and discourages better associates from working for your company.

But you can't simply divide expenses equally among the sales associates.

Often, a significant portion of the associates do not produce enough revenue to reach the breakeven point of plans where the company's fixed expenses are divided evenly among all associates. In this case, the company as a whole will not break even unless sufficient surplus is generated by other associates.

Instead of dividing by the number of sales professionals, CompensationMaster uses a number we call the Fully Productive Equivalent (FPE).

Determining the FPE is not a trivial exercise. The calculation is based on the production of the associates as well as the interaction between the expenses of the company, the compensation plans, the target profit level, and the revenue production of the associates.

This method of accounting for the reduced contribution of low producers brings a higher level of accuracy to the expense allocation. However, sophisticated software like CompensationMaster's is necessary to ensure that the number is correct; an Excel spreadsheet cannot accommodate this type of calculation.

Additionally, the result will change when revenue, expenses or compensation plans change. Since this number is essential to correct plan design, we recommend that you re-calculate it every year.

To learn more, schedule a demonstration over the Internet.

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