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Rationale of Sales Compensation Plan

The sales commissions’ compensation plan is used by many business entities like Dasani Water Distribution Company as a method of remuneration and motivation to steer sales performance. This plan is two pronged and is objectively applied to compensation to sales representatives after closing a sale and also rewarding them for meeting specified targets. The company being sales performance oriented, compensating sales executives is crucial to winning their morale and energy. This compensation system is appropriate for building synergy in sales and expanding market share for a vast growing company.

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The prospective quality of customers doing business with company depends on the approach of the sales team. They are the reputation, image and the brand of the company who need to be considered and rewarded under all circumstances. It has been established that the action of a sales representative directly affects closure of a sale. In a results oriented organization, closing a sale is more important than customer service, penetration and design wins. Commission plans will be based on a single measure not gross profit and sales revenues but the number of deals or transactions made. Sales incentive plans go alongside attainment of some target usually on a timeline and territory to include aspects of customer satisfaction, sales cycles and revenue earned by the company. This is a variable compensation mix and is adopted based on the realities and circumstances of market conditions.

Internally consistent and market consistent compensations systems

Internal consistency is achieved by the company when it pays commissions commensurate to the value brought in by the sales person and is based on the company’s perception on the sales work performed. The compensable factors take into consideration the number of customers brought into the business, physical demands, experience, supervisory or managerial responsibility, working conditions, value of business brought in and the degree of customer satisfaction. The company uses job evaluation approaches like factor comparison and point factors to reflect on experience and value of business negotiated.

The company is aligned to a market consistent compensation system by becoming a market leader in remuneration. This is merited by the understanding of basic determinants, employment of applicable strategy and substantial resources. It pays higher base pay and a superior incentive award structure with a good mix of discretionary benefits as compared to the competitors. To be a market leader in employee reward and compensation, the company takes data from custom developed surveys which are carried out by professional companies who deal mostly with various industries and consulting firms. Some other data are obtained from Bureau of Labor Statistics (BLS).

The company employs sales salary ranges on three categories:

Grade, commissions range and incentives

  1. $1000 to $ 1500 $500
  2. $1500 to $ 2000 $1000
  3. $2000 to $ 2500 $2500

So, if a sales employee wants to move from grade 1 to 2, then the beneficial or compa-ratio for the new salary scale is taken. If the employee was earning $ 1300, the new salary scale midpoint is taken, which would be $ 1750. The ratio will be:

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  • $1300/$1750 = 0.742

The organization takes into consideration a fall in beneficial ratio to be a demotion and requires a recommended course of action to be taken on the employee especially if the ratio falls between 0 and 33 percent. A ratio of between 34 and 66 means a lateral movement and infers that the employee has not moved a grade higher. A percentage of between 67 and 100 refer to a promotion of the sales person. This will be associated with the corresponding incentive scales.

Recognition of Employee Contributions

As given above, the pay structure is commensurate to the cost of living, effort used, working conditions, skills and responsibility. The remuneration is sufficient and was recently adjusted to reflect to requirements affiliated to experience, occupation, workforce, and worker and occupation specific information. Additional job characteristics are not influenced to a larger extent by academic degree but by professional certification and additional training (Slesnick, & Suttle, 2011). A worker requirement to perform the sales job is to have basic and cross functional skills to complement abilities, work styles and interests. The company considers the seasonal fluctuations of mineral water sales and has maintained a basic pay for sales which compensates for the low season. The company also has an incentive plan which recognizes the performance of various sales staff in zones assigned. The appraisal schemes used to consider employee bonus payment is effective and non discriminatory. It can be attained and many employees have been rewarded with bonuses and incentives for achieving and surpassing the sales targets given (Upadhyay, 2009).

Improving the effectiveness of discretionary benefits

Prompt payment of benefits and rewards by the employer has a significant impact on the morale and industriousness of the sales person. This has been necessitated by mutual encouragement by the company and employees to attain a common objective.

Secondly, employees need to be appreciated quarterly by rewarding them with paid vacations, paid out family outings and foreign trips. It becomes a great motivation to the sales force (Green, & Rowell, 2012).

Retirement plans and Health Insurance Plans

Dasani Mineral Water Company has subscribed to Individual Retirement Account (IRA) and Roth IRA. Since IRA is favored by the tax department, the employer remits certain amount of contributions of each employee which will be invested in tax deferred. Employees are conscious to know and determine their future and enjoy their retirement. Employers have already paved way for this by cushioning their employees from future financial drain. This will mean that the employee will not pay taxes on yearly investment profits and one can pay income tax only at the point of withdrawal at retirement. In addition, Roth IRA’s contributions are made after tax of which no more taxes will be made to the contributions. The advantageous part is that the employee can make withdrawals which have been made to the retirement body before retirement without additional penalties.

Health insurance plans have been taken up to cater for medical expenses which can be incurred by employees during working hours or tenure of service. Medicaid and long-term care insurance are subscribed by the company. Medicaid was chosen due to benefits of waivers and flexible of employer’s remittances. It entails home and community waivers, qualified Medicare beneficiary programs for all costs and low-income beneficiary program for qualified premium payers only. The long term care insurance was contracted to offer employees with sufficient protection from financial disabilities in the case where the employees are in protracted illnesses. It offers employees with adequate home-care, living care, nursing home care and daycare. They are important in enabling employees to make informed decisions regarding their health and how best the employer caters for their needs at the moment of sickness or malady.

References

Green, M. A., & Rowell, C. J. (2012). Understanding health insurance: A guide to billing and reimbursement. NY: Cengage Learning.

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Slesnick, T., & Suttle, J. (2011). IRAs, 401(k)s and other retirement plans: Taking your money Out. NJ: Nolo.

Upadhyay, S. S. (2009). Compensation management: Rewarding performance. Mumbai: Global India Publications.

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