Sales Employees Incentive Scheme

The organizations can succeeds only when employees gets the motivation for the improvement and growth of the business of the organizations in different ways like sales growth, Customer satisfaction, Cost reductions etc However the pay based solely on the measure may fail to motivate the employees to perform their full capacity Unmotivated Employees are likely to meet only Minimum performance standards. Recognizing this fact, Organizations offer some form of incentives to their workers and employees. These organizations are attempting to get more motivational mileage out of employee compensation by tying it more clearly to employee performance Now let us understand the

INTRODUCTION

Incentive Plans Creates an operating environment that champions a philosophy of shared commitment through the belief that every individual contributes to organizational success. Incentives focus employee efforts on specific performance targets. They provide real motivation that produces Loyal employee and organizational gains. Incentives payouts are variable costs linked to the achievement of results. Base salaries are fixed costs largely unrelated to output. Incentive Compensation is directly related to operating performance. If performance objectives are met, incentives are paid. If objectives are not achieved , incentives are withheld. Incentives foster Teamwork and unit cohesiveness when payments to individuals are based on team results. Incentives are a way to distribute success among those responsible for producing that success. Now, We need to understand How an incentive system can be successful

REASONS FOR ADOPTING INCENTIVE SCHEME

Satisfy Employee Needs

• The incentive system needs to satisfy the employee Needs

Proper Implementation

• The Management needs to give adequate attention for the Design and implementation of the Incentive Plan

Transparent Results

• The employees must be able to see a clear connection between incentive payments they receive and their job performance

FACTORS FOR SUCCESSFUL INCENTIVE SCHEME

Separate Pay for Incentives

The employees needs to get the Incentive pay as a different amount it should not be included in the Normal Salary. Hence it will

effect the eye of the employee.

Monitor the Payments

The Management should monitor the incentive

payments made to the employees

and budgets needs to be prepared on

monthly basis for the incentive

amounts to avail cost effective

benefit

Conducting the Meetings

Information Communication

System

We need to develop a system

in the organization to

communicate the employees

regarding their incentive

payments and made employees educated about the incentive

system and it will improve the faith of employees on incentive system.

Meetings needs to be conducted on Monthly Basis (on a fixed date in a month) for the low incentive

getting employees for the

improvement of their Performance.

FACTORS FOR SUCCESSFUL INCENTIVE SCHEME

When ever we think about the Sales personnel Incentive in Retail Stores we will get three things to our Mind

Lets understand One by One what it means

BASIC FACTORS FOR EFFECTIVE INCENTIVES SCHEME

For each and every kind of employment there will be some factors which will evaluate the performance of the Personnel. Here we are mentioning main performance evaluation factors for the sales personnel.

PERFORMACE EVALUATION

In Retail sector, The Range of products will be very huge in number and it is completely different from one another. But mostly the types of products will be as follows

RANGE OF PRODUCTS

Normally in Retail Industry, Business cycle will be divided into Seasonal Business and Unseasonal Business on the basis of Festivals and other Celebrations. By the nature, it is seasonal business there will be effect on the revenue and it will drastically deviate from season to unseasonal period.

Business Cycle

Seasonal Business

On the basis of Period

On the Basis of Product Category

Unseasonal Business

On the Basis of Period

On the basis of Product Category

High Revenue High Incentive

Low Revenue Low Incentive

BUSINESS CYCLE EFFECTS

Now we should have a Incentive system which will overcome all the disabilities of the retail industry and make the employees performance measurement on the same platform. The incentive system should take into consideration the following factors:

Needs to select the good performance measurement factor

Needs to make all the products under one Price Range

Needs to provide equalize revenue throughout the business cycle

It should be easy to compute and less time taking process

Finally, tit should understandable and motivational to the employees.

REQUIREMENTS OF INCENTIVCE SCHEME

Incentive Systems

Now we will Understand and design the Incentive System

Regular Incentive System

Periodical Incentive System

It will be calculated regularly like monthly and payment will

be made on monthly basis

It will be calculated on periodical basis like Once in 3 months and Best Sales person

on yearly Basis

TYPES OF INCENTIVE SYSTEMS

Now we learn how to calculate incentive under Regular Incentive system Before going for the calculation, We needs to make a decision on which basis we will measure the performance on Sales Value or Sales Quantity

APPROACH-1 ON THE BASIS OF SALES VALUE

Immediate Sales Incentive Scheme

Target of the Sales 20%

Target of the Salary 30%

Section of

the

Employee

Name of

the

Employee

Sales

VALUE of

the

Previous

period

Current

Actual

Sales

VALUE

% of

Actual

Sales

VALUE

Target

%

Bonus

Turnover

%

Actual

Points

Bonus

Points

Total

Points

Incentive

for the

Immediat

e Sales

Salary of

the

Employee

Incenti

ve of

the

employ

ee

Excess

/(shor

t)

Boys

Ready

Made

A

100,000

80,000 80% 120% -40%

50

-

50

750

5,000

1,050

(525)

-

- #DIV/0! 120% #DIV/0!

#DIV/0

! #DIV/0!

#DIV/0

! #DIV/0!

-

-

-

REGULAR INCENTIVE SYSTEM – ON VALUE BASIS

EXPLANATION FOR APPROACH-1

We will understand term by term about the valuation Procedure

•We need to fix the percentage of growth in sales when compared to last year Sales Target

•We need to fix the Percentage of salary which we will be budgeted as Incentive to the employee

Budgeted Incentive in Salary

• Needs to mention the name of the section in which the employee is working during the period Section of the

employee

• Needs to mention the name of the employee Name of the Employee

• Needs to mention the employee sales in the section in the same period

Sales of the Previous period

•We need to mention the sales of the employee in the current period Actual Sales

• It will show the % of current sales in the Previous year sales of the employee % of Actual Sales

• It gives an idea about the targeted sales % fixed for the employees Target %

• It will show the extraordinary performance of the employee when he crossed the Target fixed by the Management

Bonus Turnover %

• On the basis of the employee performance the sales % will be converted into Points (Refer Table-1) Actual Points

EXPLANATION FOR APPROACH-1

•We will give appreciation to the employee for the extraordinary performance in different Manner(Refer Notes)

Bonus Points

• It will show the Net points (Actual points + Bonus points) gained by the employees. Total Points

• It shows the amount of incentive gained by the employee through his performance during the period Incentive for Sales

• Needs to mention the salary of the employees during the period of calculation.

Salary of the employee

• It will show the budgeted incentive of the employee and it will get compared with the actual and variance can be visible immediately in the next column.

Budgeted Incentive

EXPLANATION FOR APPROACH-1

NOTES FOR APPROACH-1

An employee will be eligible for the incentive only when the employee achieves the 80% of the previous period sales. On the basis of Percentage we will give points to the employees. The table is as follows In case the employee crossed the Fixed target, then he will get the bonus points. For every 1% of extra sales the employee will get 0.5 points. In the incentive gained by the employee, we will pay 70% for the immediate sales incentive (Regular Incentive) and the balance 30% will be paid as Non immediate Sales incentive (Periodical Incentive) Through the variance in the calculation we can see the immediate effect on the budget of the incentive system. The employee previous year sales will be fixed as Total sales value of the particular section for the previous year is divided by number of employees working in the section in the previous year

Percentage of Sales Actual Points

80%-90% 50

90%-100% 55

100%-110% 60

110%-120% 70

Table-1

The Management needs to be careful while fixing the Budgeted incentive % in salary and Sales Target and it should be acceptable by the employees. It is the essence of the Entire Incentive System. The targets needs to be change from time to time basis because in season we can expect more but in un season we cannot expect. Hence it needs to be fair as per situation of the business.

APPROACH-2 ON THE BASIS OF SALES QUANTITY

Method -2 is exactly same procedure as Method-1. But only the difference will be in method – 1 we will calculate the Points on the basis of sales Value but in this method we will calculate on the basis of sales Qty. We can select any of the methods because each method has its own advantages. Hence Management needs to take decision on Method of Calculation

REGULAR INCENTIVE SYSTEM–ON QUANTITY BASIS

Advantages of Two Methods

On the Basis of Value On the Basis of Qty

In this method, we can fix the target most appropriately and it will be easy to the employee to achieve the same.

In this method, We can avoid the effect of the Inflation and price increase

There is more scope to increase the Sales Value per Bill.

It will improve the quality of service and customer satisfaction

We can improve the sales of the High price Range products.

The employee will be attentive and ready to sell even if the product value is low

It is easy to compute and understand. The Management can make accurate budgets and results can be expectable.

Team performance can be improved by supporting each employee to the other employee sales through References to other sections

Team performance can be improved by supporting each employee to the other employee sales through References to other sections

POSITIVE POINTS OF TWO APPROACHES

Now let us understand how to calculate Periodical Incentive system. The Incentive under the Periodical incentive system will be based on the feedback received from the supervisors. It will helps to improve the long term growth aspects like customer loyalty, Customer Services etc Basically the entire incentive for the periodical incentive will be based on the qualitative factors relating to the sales Person. Grading system will helps us to measure the qualitative performance of the employees on individual or group of individuals basis. On the basis of Grading, the employee will gets the points and it will be converted into monetary funds. We will make an attempt to understand the incentive calculation under Periodical Incentive System

PERIODICAL INCENTIVE SYSTEM

The following are the qualitative factors which are Minimum criteria for the successful sales Employee Non Immediate Sales Incentive

Name of the Section:

Name of the Employee:

Floor Incharge:

Salary of the Employee 5000

Target of the Salary 30%

Sl.No Qualitative Factors Grade No of Points

1 Attendance & punctuality of the Employee A 10

2 Reference given by the sales person for the new

customers A 10

3 Any Ideas given for the development or growth of the

organization or new strategies in sales growth A 10

4 Proper Availment and usage of the Non selling time A 10

5 Customers management or relations( No complaints

during the period) A 10

6 Knowledge and follow of Organization rules & Policies A 10

7 Quality of Sales Presentations A 10

8 Knowledge of Customer Tastes and Products A 10

9 Co operative, Responsible in team work and ability to

analyze logically A 10

10 Personal Appearance in the organisation A 10

Grand Total 100

Incentive Amount 450

Needs to fill up the basic details in the place provided at the top of the Table for the basic knowledge of the employee profile

Management needs to take a decision on the Target of the salary and even though it is periodical payment but entire amount will be paid in one shot for the satisfaction of the employee

The qualitative factors are the industry standard factors. Hence it will be applicable for all kinds of sales staff irrespective of their Working Areas in the organization.

The Grades provided in the table will on the basis of the Grading table (Refer Table-A) which will help the supervisor to finish the feedback within the short span of time.

EXPLANATION FOR PPERIODICAL INCENTIVE SCHEME

NOTES FOR PPERIODICAL INCENTIVE SCHEME

The incentive can be determined either on the individual basis which means for each and every employee and on the group of individuals basis which means for the common group of employees. In this method, We will stop some portion of the employee incentive which will be paid at a shot on periodical basis. It hellps to improve the loyalty of the employees. The grading table is as follows:

Performance Grade Points

Outstanding A 10

Above Average B 5

Average C 3.5

Below Avg D 2.5

Poor E 0

TABLE-A

NOTES FOR PPERIODICAL INCENTIVE SCHEME

The incentive can be determined either on the individual basis which means for each and every employee and on the group of individuals basis which means for the common group of employees. In this method, We will stop some portion of the employee incentive which will be paid at a shot on periodical basis. It helps to improve the loyalty of the employees. The grading table is as follows:

Performance Grade Points

Outstanding A 10

Above Average B 5

Average C 3.5

Below Avg D 2.5

Poor E 0

TABLE-A

PROFITABILITY OF INCENTIVE SCHEME

Up to now we have understood How to calculate the incentive under different methods. But now we need to understand what benefit we are getting from the Incentive System. As an organization, it is very important to Make benefit for each and every Rupee of Cost incurred. Lets have a look on the benefit of the Incentive scheme in our organization and Makes measures to calculate the benefit of the incentive scheme.

Name of the

Section

Additional

Turnover of

the section

Contribution % Contribution

Amount

Incentive

payment Amt

Return for the

Investment

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EXPLANATION FOR PROFITABILITY

Name of the Section

Additional Turnover of the

section

Contribution %

• Needs to mention the name of the section.

• The additional turnover achieved by the section when compared to the previous period needs to be mention.

• The Average GP % which will be visible in the software needs to be mention.

EXPLANATION FOR PROFITABILITY

Contribution Amount

Incentive Payment Amount

Return for the Investment

• It is the applied formula of Additional Turnover multiplied by Contribution %

• The amount of Incentive paid to a particular section during the period needs to be mention

• It helps to understand the number of times of benefit arrived for the cost incurred on the incentive scheme.

LAST FEW WORDS

• In the Entire Process, we needs to fill up only few areas in the tables and other calculations will come automatically along with the Budgeted and Actual Figures •The Data tables are designed in a comprehensive manner which will show the Budgets , Actual and Variances for the same. • Management decision making only makes the difference for the incentive scheme. While taking decision, management needs to be careful and it should change from Time to Time on the basis of the business cycles and industry fluctuations. • The results of the incentives needs to be communicate to the employees of the organization on monthly basis. It will helps the employees to understand and improve their performance. • If we get Involved in the procedure for calculation of Incentive then it will be easy to compute on monthly basis with in a Short span of time.

THE END