Use of Bonuses

Bonuses are different from commissions-a bonus is an amount paid for accomplishing a specific sales task; a commission varies in amount with sales volume or other commission base. Bonuses are paid for reaching a sales quota, performing promotional activities, obtaining new accounts, following up leads, setting up displays, or carrying out other assigned tasks. The bonus, in other words, is an additional financial reward to the salesperson for achieving results beyond a predetermined minimum.

Bonuses are never used alone-they always appear with one of the three main sales compensation methods. If used with the straight salary, the plan resembles the combination plan. If used with the straight commission, the result is a commission plan to which an element of managerial control and direction has been added. If used with the combination salary and commission plan, the bonus becomes a portion of the incentive income that is calculated differently from the commission.

Certain administrative actions are crucial when a bonus is included in the compensation plan. At the outset, the bonus conditions require thorough explanation, as all sales personnel must understand them. The necessary records must be set up and maintained. Procedures for keeping sales personnel abreast of their current standings relative to the goals are needed. In addition, any bonus misunderstandings or grievances arising should be dealt with fairly and tactfully.

Deriving Compensation Plans from Marketing Strategies

Marketing Strategy	Objectives	Sales Tasks	Recommended Compensation Plan
Build	Build sales volume	Call on prospective and new   accounts Provide high service levels, particularly presale service Product / market feedback	Salary plus   Incentive
Hold	Maintain sales volume Consolidate market position through concentration on targeted segments Secure additional outlets	Call on targeted current Accounts Increase service levels to current accounts Call on new accounts	Salary plus   commission or bonus
Harvest	Reduce selling costs Target profitable accounts	Call on and services most   profitable accounts only and eliminate unprofitable accounts Reduce service levels Reduce inventories	Salary plus   bonus
Divest/   liquidate	Minimize selling costs and clear out inventory	Inventory dumping Eliminate service	Salary