Posted in Marketing and Strategy Terms, Total Reads: 1876
Definition: Straight Salary Plan
Different companies offer different compensation plans to their sales representatives- the straight salary plan being one of the simplest. While in certain compensation plans, the salespersons receive benefits on accomplishment for specific tasks (e.g. bonuses for sales target achievement), in others salespersons receive commissions as a percentage of the sales they were involved in.
Although most compensation plans are incentivized, the straight salary plan is a method of compensation in which the salespersons receive a straight-forward fixed salary with no commissions. They receive fixed sums of money at regular intervals (usually each month). This leaves the salespersons with no opportunity for extra money or incentives.
The major disadvantage is that the salespersons may not feel motivated and would only complete the minimum requirements. Incentives are often seen as effective triggers when the objective is to improve the top line i.e. total sales. However, a straight salary plan also has its own advantages. Such a plan is quite common in the services industry as well as in the industrial goods sector.
• Security and collaboration: The straight salary plan provides a more stress-free working environment for the salespersons. The high level of uncertainty associated with performance-based pay often leads to extreme competition among the salespersons; leading to lack of cooperation that can harm the company’s goals at times. Certain selling opportunities require collaborative efforts and an incentive-based system may not be suitable because it might be difficult to determine different individuals’ level of contribution.
• Service focus: Such a plan works well for sales positions where pushing a product may not be necessary and customer service is of utmost importance. For example, consider a salesman who frequents various retail stores or department stores to check inventory or take orders for replenishment. What is important here is building a close relationship with the retailer and satisfying the customer’s needs. An incentive pay cannot work in such a case.