Designing Pay Structures

  Responding to a classmate:

John knows his business and knows his company has a competitive edge by offering both repairs and bodywork to fleets of large vehicles.  John also knows there is an untapped market of companies with large fleet vehicles that he does not have the time to solicit.  Referrals are valuable, but businesses also need to put forth an effort to gain new business.  Once John evaluates the potential increase in revenue against the salary he is willing to offer a sales representative I believe he will see that the hiring is a good decision. 

When developing the compensation plan for this new sales representative John needs to balance fixed and incentive pay to motivate the new hire.  First John needs to consider the competitive pay standards within the industry.  He needs to offer an appropriate mix of pay to compete with his competitors.  Another factor is the influence the sales representative will have on buying decisions.  The more influence they have on buying decisions, the more incentive-based pay you would offer.  John will also need to consider the amount of non-sales activities like maintaining positive relationships with current customers.  The percentage of time spent maintaining relationships will need to be compensated with a fixed pay.  If you only offer incentive pay, the new representative will be more concerned about new business than maintaining the current.