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The following are sales representative TI-Commission sample plan designs: 1 Flat Commission 2A Ramped Commission Progressive 2B Ramped Commission Regressive 2C Ramped Commission Hybrid 3A Commission Plan with Base Salary 3B Base Salary,Threshold, and Cap 4AVariable Rate Plan 4BVariable Table 4C Point Schedule Variable Commission Plan 5A Link Commission Hurdle 5B Link Commission Multiplier 5C Link Commission Matrix 6A Individual Commission Rates (ICRs) 6B Stratified Commission Rates
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Sales Representative TI-Commission: 1 Flat Commission
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As presented for the income producer, the flat commission schedule (see Figure 5-9) is the simplest sales compensation formula However, you must remember that the basis for the commission rate is a function of the target incentive divided by the target sales production There is no threshold and no cap This formula type assumes that territories have relatively equal potential Often sales management will realign territories or accounts to balance the potential Use of a TI-Commission becomes less plausible when the difference between the smallest territory and the largest territory becomes greater by a factor of 2x Figure 5-10 is an illustration of a TI-Commission formula (flat commission)
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Commission Rate x% of Sales Production
Low Low Target Sales Production High
Figure 5-9 Sales Rep: 1 Flat Commission
Component
Flat Commission Schedule Sales Performance All Sales Commission Rate 7%
Commission Rate
Commission Rate
Figure 5-10 Target Incentive Commission Formula (Flat Commission)
Observations Straight commission plans (no base salary) are not common for sales representatives, although sales management might use such a plan for a high influence sales job where turnover is acceptable and full variable costs are needed
Sales Representative TI-Commission: 2A Ramped Commission Progressive
Progressive ramp commission rates (see Figure 5-11) provide added motivation for selling beyond target In a progressive ramp, the second rate is higher than the first rateThe new rate is only effective when the target amount is reached and does not (should not) retro-back to pay the previous sales volume at the new, higher rate
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High
Compensation
2 nd Commission Rate y% of Sales Production
Target Low Low Target
1st Commission Rate x% of Sales Production
High
Sales Production
Figure 5-11 Sales Rep: 2A Ramped Commission Progressive
Figure 5-12 is an illustration of a ramped commission schedule In this example, we see that the commission rate increases from 6 to 8 percent A predetermined level of accomplishment is achieved in this case $15M
Component Progressive Ramp Commission Schedule Sales Performance To $15M Over $15M Commission Rate 6% 8%
Commission Rate
1 Commission Rate nd 2 Commission Rate
Figure 5-12 Progressive Ramp Commission Schedule
Observations Most incentive formulas feature a progressive rampThis approach rewards additional sales performance
Sales Representative TI-Commission: 2B Ramped Commission Regressive
In some instances, the commission rate declines at a predetermined level Sales representatives do not view regressive rates favorably However, in some instances the company needs to avoid excessive
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High 2nd Commission Rate z% of Sales Production
Compensation Target Low Low 1st Commission Rate x% of Sales Production Target Sales Production High
Figure 5-13 Sales Rep: 2B Ramped Commission Regressive
upside payments caused by either poor quota setting or unexpected windfalls Figure 5-13, a regressive ramp rate (a lower commission rate than the first rate) serves this objective Figure 5-14 is an illustration of a regressive ramp commission Schedule In this example, we see that the commission rate decreases from 7 to 5 percent A predetermined level of accomplishment is achieved in this case $1M
Component Regressive Ramp Commission Schedule Sales Performance To $20M Over $20M Commission Rate 7% 5%
Commission Rate
1 Commission Rate nd 2 Commission Rate
Figure 5-14 Regressive Ramp Commission Schedule
Observations As with any regressive plan, not paying more for additional sales seems demotivational, and from the salesperson s perspective it is Yet, when conditions exist for exceptional earnings beyond the 3x or comparative upside market rates, then the use of a regressive formula becomes more practical However, it does present a communication challenge to sales management
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Sales Representative TI-Commission: 2C Ramped Commission Hybrid
In this hybrid example (see Figure 5-15), we see the use of both progressive and regressive ramps
High 3rd Commission Rate z% of Sales Production
Compensation Target Low 1 Commission Rate x% of Sales Production
2nd Commission Rate y% of Sales Production
Target Sales Production
High
Figure 5-15 Sales Rep: 2C Ramped Commission Hybrid
Figure 5-16 is an illustration of a hybrid-progressive/regressive ramp commission schedule
Component Hybrid-Progressive/Regressive Ramp Commission Schedule Sales Performance To $25M $25M $50M Over $50M Commission Rate 4% 7% 5%
Commission Rate
1 Commission Rate (x) nd 2 Commission Rate (y) rd 3 Commission Rate (z)
Figure 5-16 Hybrid-Progressive/Regressive Ramp Commission Schedule
Observations The hybrid approach uses both the positive (progressive) and negative (regressive) motivation impact of ramps It provides additional rewards for additional sales, but after reaching a predetermined point, the commission rate declines
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Sales Representative TI-Commission: 3A Commission Plan with Base Salary
Straight commission plans feature pay plans with no base salaryThe incentive formula provides all the earnings Figure 5-17 illustrates commission with a base salaryThe sales representative earns a commission on top of the base salary The addition of target base salary and target incentive for the job defines the total target cash compensation assigned to the job
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