Chapter 7

Plan Cost Modeling

Designing effective sales compensation plans includes modeling the direct and indirect cost impact of the new pay plan. For income producer plans, management is fortunate to have an unambiguous cost of sales: the commission rate. Using the commission rate, often an industry standard earned by all incumbents, income producer management can quickly and confidently identify costs and model the impact on sellers. The relationship between pay and performance is linear; the more sold, the more paid as management applies a flat commission rate. The same cost-modeling simplicity cannot be said for target pay incentive plans used for sales representatives. With numerous jobs, target pay levels, quotas, measures, and sales ...

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