Recipe for Success: Optimizing Sales Compensation with Pay Level and Pay Mix

5033710308_88f7457e6d_z[We’re pleased to welcome Pankaj M. Madhani of ICFAI Business School (IBS). Pankaj recently published an article in Compensation & Benefits Review entitled “Sales Compensation Strategy: An Optimal Design of Pay Level and Pay Mix”.]

Compensation strategy decision regarding pay level (total earnings generated) and pay mix (relative proportion of fixed pay and variable pay) are both vital in sales compensation plan. This research explains major attributes of pay level and pays mix design of sales organization and identifies various factors influencing it. Pay level is influenced by characteristics of the sales organization, the job market conditions for CBR_42_1_72ppiRGB_powerpointsalespeople, the content of sales job, the quality of sales employees and management style and philosophy. It is also affected by various other factors such as geographical location or cluster, trade unions, statutory requirements, standard of living as well as general economic conditions. Similarly, pay mix plans vary significantly depending on the sales organization’s environment, the competitiveness of the market in which it does business, environmental munificence, environmental turbulence and uncertainty, nature of products and services, current/desired sales structure, product life cycle, organization life cycle, culture, career life cycle, degree of unionization and nature of the work performed.

Hence, determining the most effective sales force pay level and pay mix is an art; scientifically developed algorithms for formulating an optimal pay level and pay mix does not exist. This research provides analytical frameworks and models for calculating optimal pay level and pay mix. An effective compensation plan through optimal design of pay level and pay mix successfully balances the needs of salespeople, sales organization and customers simultaneously to maximize value of the organization. Finally, research concludes with an illustration to provide methodology for calculating optimal value of pay level and pay mix in a sales organization.

You can read Sales Compensation Strategy: An Optimal Design of Pay Level and Pay Mix” from Compensation & Benefits Review free for the next two weeks by clicking here. Want to know all about the latest research from Compensation & Benefits Review? Click here to sign up for e-alerts!

*Cash register image credited to Yannick Bammert (CC)


Pankaj MadhaniPankaj M. Madhani earned bachelor’s degrees in chemical engineering and law, a master’s degree in business administration from Northern Illinois University, a master’s degree in computer science from Illinois Institute of Technology in Chicago, and a PhD in strategic management from CEPT University.

He has more than 28 years of corporate and academic experience in India and the United States. During his tenure in the corporate sector, he was recognized with the Outstanding Young Managers Award. He is now working as professor at ICFAI Business School (IBS) where he received the Best Teacher Award from the IBS Alumni Federation. He is also the recipient of the Best Mentor Award. He has published various management books and more than 250 book chapters and research articles in several refereed academic and practitioner journals such as World at Work Journal and The European Business Review. He is a frequent contributor to Compensation & Benefits Review and has published 16 articles on sales compensation. His main research interests include salesforce compensation, corporate governance, and business strategy. He is also editor of The IUP Journal of Corporate Governance.


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