Compensating a good sales manager is critical to ensure that you keep talented people onboard. The sales manager “plans, directs, or coordinates the actual distribution or movement of a product or service to the customer,” according to the U.S. Bureau of Labor Statistics. The manager is also responsible for the recruitment, training and management of sales staff, the establishment of sales territories and targets, and overseeing the reporting of sales achieved to senior management.
Commonly, a sales manager earns a remuneration package comprising a combination of salary, commission and other incentives. The basic salary compensates the sales manager for the managerial and administrative aspects of his work, and may be based on the amount of time spent on these activities. For example, if the sales manager spends 50 percent of his time attending to administrative tasks for which he is unable to earn additional income, then the basic salary must provide at least half of the amount he needs to earn.
A sales manager may be promoted into her position after proving her abilities in the field, and is often an excellent sales person. For this reason, the manager may retain a sales territory in which she can still make sales or receive orders from established customers. The remuneration for this type of sales is commonly based on a sliding commission scale, which operates by identifying the basic monthly or annual sales target and the base commission payable for achieving it. Thereafter, as higher sales target levels are reached, the commission increases to provide improved rewards for improved sales.
The sales manager is directly responsible for the motivation, management and performance of the sales staff reporting to him, and usually receives a small percentage of “overriding” commission based on the sales they achieve. For example, if a sales manager has five sales agents reporting to him who each earn 10 percent of the value of their sales on reaching target, he may earn a 2 percent overriding commission on the sales each agent makes. This is in addition to his basic salary and any direct sales commission he still earns, and can give him significant earning power.
Incentive bonus payments are usually part of a hybrid remuneration plan and take the form of an annual bonus, based on the overall results for which the sales manager is responsible. This type of plan offers the opportunity to drive higher sales by linking results directly to rewards. For example, if the sales team has reached or exceeded its target for the year under the leadership of the sales manager, she may qualify for an incentive based on a percentage of total sales or a discretionary lump sum payout.
In some companies, sales leaders work on a goal-based plan that has payout thresholds. For example, the sales manager earns no variable pay unless the team achieves the minimum sales target, but receives a bonus based on a sliding scale for exceptional performance.
- U.S. Bureau of Labor Statistics Occupational Employment and Wages, May 2010: Sales Managers
- “Getting a Cut: A Contextual Understanding of Commission Systems”; Richard Seltzer, et al.; 2010
- USLegal: Overriding Commission Law & Legal Definition
- The Cygnal Group; What is an override/overwrite?; Donya Rose; May 2008
- World At Work; Best of Both Worlds: Using Hybrid Incentive Plans; Ira Feder
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