Methods of Remuneration

There are three basic methods of remunerating salesmen — the straight salary method, the straight commission method, and the combination (salary-plus-commission) method.

1. Straight salary method. The salesman is paid a fixed sum at regular intervals (say, monthly), regardless of the volume of sales he makes.

• Merits: it gives the salesman a secure, steady income; it is simple to calculate; it suits situations where sales cannot be directly traced to one salesman or where the salesman does non-selling duties such as opening new territories or servicing customers; and the firm has full control over how the salesman spends his time.
• Demerits: it offers no direct incentive to sell more, so an inefficient salesman is paid the same as an efficient one; hard-working salesmen may feel it is unfair; and the firm's selling cost stays fixed even when sales fall.

2. Straight commission method. The salesman is paid only a commission, calculated as a percentage of the sales (or profit) he brings in, with no fixed salary.

• Merits: it is a strong incentive, because earnings rise directly with sales; the firm's selling cost varies with sales, so it pays only for results; and it rewards the efficient salesman.
• Demerits: the salesman's income is uncertain and may be very low in a bad period or in a slack season, which creates insecurity; salesmen may neglect non-selling duties (like service and reports) and may push for quick sales rather than building long-term customer goodwill; and it is unsuitable for new salesmen who have not yet built up sales.

3. Combination method (salary plus commission). The salesman is paid a fixed salary plus a commission on sales above a certain level. This is the most widely used method because it combines the advantages of the other two while avoiding their extremes.

• Merits: the fixed salary gives security and covers non-selling duties, while the commission provides an incentive to sell more; it is fair to both the salesman and the firm; and it helps attract and retain good salesmen. …