Whether it is before you start a new job, or if a known situation ever changes, you need to know how you get paid!  You cannot master the situation if you don’t understand it.  There is not mystery as to how sales professionals get paid, it is all about that ‘paper’.

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The most important aspect of a sales job is getting paid.  In the end it is about that paper! I am not talking about the money type ofpaper; I am talking about the written remuneration or compensation plan.  That is the most important paper out there.  Getting paid is important; as it is one way to keep score, yet it is also the way we eat and keep our families happy.

The objective of this post is to give those who need to know a basis to understand the basic remuneration systems in an easy, no nonsense way.  What is more important is that you learn your company’s system and “work the hell” out of it.

Remember, it is your right to work the system, yet also, it is good policy on your part to keep your activities in the spirit of the system as well.  Working the system is not cheating, and if you are within the spirit of the system, and you will still get your reward.

An important note for all remuneration/compensation stakeholders is that whenever commissions are involved, care must be taken to realize the volatility that can exist.  Sometimes this uncertainty is beneficial (higher earnings), and sometimes it can be detrimental.  In the end, as I said, it’s about the paper, but also the confidence you have in the company’s products and your own abilities.

7 Major Types of Compensation Methods

Companies have the right to do whatever is legal and makes sales happen.  They can put together a variety of different types of plans that stimulate gross sales, retain sales professionals, promote particular products, develops territories, etc.  There are significant numbers of Black sales professionals in each of these type of arrangements with many prospering.  Your ability to take downside risk will determine how you feel about these.

Having been involved in the design and approval of compensation plans from a company standpoint, much thought goes into them, as once they are out there, they you are stuck with them for the prescribed term.

Here are examples of the most popular and widely used plans:

Salary – You have a simple formula to operate under, yet no incentive to excel other than a performance review.  Salary is safe and secure with no upside.

Straight Commission – No base salary, no upside limit, and the downside can be “$0 dollars”.  The risk is with you, yet if you excel, and you must to work under this system, the “force” is with you.

Draw Against Commission - In this one, you have some subsistence in the form of a ‘draw’ providing an advance of commissions with an agreement to pay it back if you do not ‘earn’ it.  The employer is essentially loaning you money against your commission income.  You get the benefit of some subsistence but still have the risk of an downside and the benefit of an upside.

Salary Plus Bonus – A pay system sought after by many professionals as it provides a solid floor, while providing significant upside earnings paid periodically, often quarterly as a bonus.  Often using the components of a straight commission system to help determine the bonus amount.

Base Plus Commission – Similar to above, this is a popular method, tried and proven.  Fixed base salary with commissions paid on the system quarterly or more often.  Commissions are usually based on percentages of dollars sold.

Variable Commission – These are straight commission schemes that have percentages that vary with product, size of the sale, attainment of goals, etc.  Much depends on what the company is trying to promote.

Residual Commission – Commissions that are paid based on customer longevity once initiated.  Aggregate residual commissions can form a solid ‘base’ which provides a good income, and some stability.

There may be other methods of compensation, but usually it is based on some variation of one of these arrangements.  In almost all cases the compensation plan is in writing, and available to all sales professionals for study.  Don’t forget to study this item and even have discussion with some of the more experienced sales professionals in your sales unit.  You will want to know the nuances of this plan that makes for higher earnings.

How Much Guts Do You Have?

Obviously these different arrangements involve different risks.  Hands down the straight commission set-up involves the most risk and highest instability.  It is sales compensation in its purest sense.  You sell and you get paid! I never worked nor managed in a system like this, and recognize that many of you do.

There are combinations of these elements that make for remuneration systems that need the ability to emphasize particular objectives.

Example 1. A salary + bonus system that wants to reward customer longevity attaches a component which uses residual commissions to strengthen the bonus.

Example 2. A variable commission changes your percentage on sales of a certain product based on reaching a certain level of sales.  Let’s say you receive 8% commission on the first $100,000 of sales of widgets, which increases to 12% for all sales thereafter.  Once you reach the 100,000, you are rewarded with more from your great work.

Yes, It’s About that Paper!

I would make the suggestion that you get your organization’s sales compensation plan in front of you and study it.  Do the brief interview with your sales comrades to determine how to maximize it.

There are times that the organization’s objectives, and the compensation or remuneration plan are not in concert.  Rewarding the sales of products that are not profitable, or are in low supply are examples.

Know the plan and formulate your objectives and you can work efficiently and effectively by maximizing your efforts and your income.

Be effective!