There are a variety of incentive schemes that can be implemented in order to help motivate and reward salespeople. In this exercise you need to first calculate the total salary/incentive paid in each of the following payment structures. Then you need to determine which structure is the best approach.
ACTIVITY/TASK
For all the incentive schemes below: George, the salesperson, sells 1,000 toasters in April and 2,000 toasters in May.
Incentive Scheme One
- Straight commission only
- George gets paid $3 per toaster
| George’s total remuneration = |
In April? |
In May? |
Incentive Scheme Two
- Straight commission but with a guaranteed salary
- George gets paid $3 per toaster
- But with a minimum salary of $4,000 per month
| George’s total remuneration = |
In April? |
In May? |
Incentive Scheme Three
- Salary only
- George gets paid a salary of $5,000pm
| George’s total remuneration = |
In April? |
In May? |
Incentive Scheme Four
- Straight commission but with a guaranteed salary and a bonus
- George gets paid $2 per toaster
- But with a minimum salary of $3,000 per month
- And a bonus of $2,000 if he sells 2,000 or more toasters
| George’s total remuneration = |
In April? |
In May? |
Incentive Scheme Five
- Salary plus commission
- George gets paid a salary of $2,000 pm
- And a commission of $2 per toaster
| George’s total remuneration = |
In April? |
In May? |
QUESTIONS
- Start this exercise by completing the above calculations.
- Which scheme would George probably prefer? Why?
- Which scheme would the firm probably prefer? Why?
- If they would prefer different approaches, how would you resolve the situation?
- Is it always necessary to use some sort form of incentive scheme, or is sometimes a straight salary approach the best option?
- If different, is there another scheme more suitable to meeting the needs of both parties?