What are the three considerations used in determining fixed pay and the compensation mix in sales compensation plans?

What will be an ideal response?

Answer: Influence of the Salesperson on the Buying Decision. For the most part, the more influence sales professionals have on "buying" decisions, the more the compensation mix will emphasize incentive pay. Salespeople's influence varies greatly with the specific product or service marketed and the way these are sold. Many sales professionals assume an order-taker role, with little influence over purchase decisions. For example, salespeople in such large department stores as Sears and Best Buy have little influence over the merchandise for sale. These stores send their buyers to manufacturers to purchase lines of products that will be sold throughout the United States and abroad. Product display and promotional efforts (e.g., television or newspaper ad campaigns) are determined by store management.

On the other end of the spectrum, some employees serve as consultants to the client. For instance, when a company decides to invest in computerizing its worldwide operations, it may approach a computer manufacturer such as Dell to purchase the necessary equipment. Given the technical complexity involved the client would depend on Dell to translate its networking needs into the appropriate hardware and software. These Dell sales professionals ultimately influence the purchase decision.

Competitive Pay Standards within the Industry. A company's compensation mix must be competitive if the company wants to recruit high-quality sales professionals. Industry norms and the selling situation are among the key determinants of compensation mix. For instance, competitive standards may dictate that the company must give greater weight to either incentive or fixed pay. Incentive (commission) pay weighs heavily in highly competitive retail industries, including furniture, home electronics, and auto sales. Salary represents a significant pay component in such high entry-barrier industries as pharmaceuticals. For pharmaceuticals, barriers to entry include the U.S. Food and Drug Administration regulations on testing new products. This step extends the time from product conception through testing to marketing products. Salary is an appropriate compensation choice because pharmaceutical companies face little risk of new competition.

Amount of Nonsales Activities Required. In general, the more nonsales duties salespeople have, the more their compensation package should tend toward fixed pay. Some companies and products, for instance, require extensive technical training or customer service activities. In the pharmaceuticals industry, sales professionals employed by such companies as Bristol-Myers Squibb, Lilly, and Merck must maintain a comprehensive understanding of their products' chemical compositions, clinical uses, and contraindications.