Month: November 2020

Merit Pay

Merit pay is a reward based on how well an employee has done the assigned job. The payment is based on individual employee’s performance. Rewarding the best performer with merit pay is a powerful motivation. Merit pay motivates the employees to work hard and achieve the assigned tasks. Merit pay may be in the form of lumpsum amount or as a percentage base pay.

Some of the problems in designing a merit pay scheme are:

1. It is difficult to measure performance objectively.
2. Employees, very often, fail to understand the connections between merit pay and performance.
3. Bias in assessing performance.
4. The superior may not be a competent evaluator.

Scanlon Pay

The Scanlon Plan developed by Joseph Scanlon is designed to involve the workers in making suggestions for reducing the cost of operations and sharing the gains of increased productivity. The plan has two components, i.e., financial incentive aimed at cutting cost and increasing efficiency and suggestion scheme. The suggestion received from employees is screened and evaluated by a committee. If the suggestion is implemented and successful, the employees usually share 75% of the savings and the balance is set aside for the months in which labour costs exceed standard cost.

Profit Sharing Plan

Profit sharing involves the determination of organisation’s profit at the end of the financial year and the distribution of a percentage of the profits to employees, qualified to share the earnings. To enable the workers to participate in profit sharing, they are required to work a certain number of years and develop some seniority. Profit sharing is an additional payment over and above regular salary payment. Professional management consider workers as partners in the production process and profit is an outcome of the efforts of employees and therefore it could be shared between employer and employees.

According to ILO, “Profit sharing is a method of industrial remuneration under which an employer undertakes to pay to his employees, a share in the net profit of the enterprise in addition to their regular wages”.

According to Henry Seager, “Profit sharing is an arrangement freely entered into by which the employee receives a share fixed in advance of the profits”.

Features of Profit Sharing:

1. The proportion of the profits to be distributed is determined in advance.
2. The amount to be distributed depends upon the profits earned by the enterprise and is computed on the basis of agreed formula.
3. The employee should have some qualifications such as length of service to become eligible for the financial benefit.
4. Profit sharing is reward for collective efforts of employees and is over and above wages.
5. That are paid regularly.
6. The extra payment is generally paid in cash. However, it can be in kind such as equity shares,
7. Profit sharing may be on industry basis, locality, unit, department or individual basis also.

Objectives of Profit Sharing:

1. To develop employer-employee relations and employee morale.
2. To improve efficiency of operations by reducing costs and increasing output.
3. To eliminate waste in the use of materials and equipments.
4. To supplement the regular income of the workers.
5. To provide group incentive for higher output.
6. To provide for employee security in the case of death, retirement or physical disability.

Limitations of Profit Sharing:

1. The payment is made only when the profit exceeds a particular limit and therefore the scheme does not guarantee payment to workers.
2. During period of depression, it may not be possible for its management to make payment to worker.
3. It gives equal benefit to all workers and there is no distinction between good and bad performance.
4. Trade unions and workers feel that bonus payment is better compared to profit sharing.

ESOP

Employee Stock Plan is one of the important pay for performance devices to attract and retain promising employees. It commands employee loyalty. Stock options are tremendous motivators because they directly link performance to the marketplace. The principle of stock option is to let employee add value to the company and benefit from it.

It is a form of compensation which enables the employees to purchase shares of their company and gain from possible rises. Under the scheme, employees who are eligible for receiving the award are they offered specified number of shares. They gain when the share prices go up. Stock options create wealth for employees without involving large cash flow to the company.

Types of Employee Stock Plans:

1. Employee stock option scheme: The Company grants an option to its employees to acquire shares at a future date. The options are offered at a predetermined price.
2. Employee stock purchase plan is followed in listed companies: The employees are given the right to acquire share of the company immediately after they earn them based on length of service/performance, normally at a price lower than market price. Shares issued will be subject to lock-in period during which the employee cannot sell them.
3. Restricted stock plan: The employee need not put in money. However, shares are subjected to some restrictions. The employee has to continue to work in the company for a specific period, otherwise shares may be forfeited.
4. Phantom stock is a special type of stock option scheme that protects the holder against any depreciation in the value of stocks.

Advantages of Stock Plan:

1. Employee remains loyal and committed to the company.
2. Develops long-term relations between employer and employee. The employees feel that they are owners of the company and not just paid servants.
3. Develops teamwork among employees.
4. Reduces employee turnover.
5. The companies are able to attract and retain employees.
6. The scheme links compensation to performance.

Limitations:

1. The scheme can be implemented only by profit-making companies.
2. Falling share prices lead to losses.
3. Employees are forced to continue employment with the company for availing the scheme.

Gain Sharing

Gain Sharing aims at increasing productivity or decreasing labour cost and sharing the gains with employees. When productivity exceeds the baseline, an agreed savings is shared with employees. Gain sharing plan increases co-operation and understanding among workers and teams and they work for achievement of common goals. Example: Scanlon plan aims at cost cutting and increasing efficiency of operations and sharing the gains with employees. It also includes suggestion scheme for cost-cutting.

Earning at Risk plan

Earnings-at-risk (EAR) incentive plans are designed to enhance performance, in part, by creating base wage dissatisfaction that, in turn, triggers greater effort directed toward performance behaviors rewarded with incentive pay. However, employee disatisfaction with EAR plans in general and base wages in particular may also produce unintended consequences that counteract any benefits these plans produce.

Managers who decide to adopt an EAR plan should be aware of the negative reactions employees may have to these plans, the level of personal control employees actually have over targeted performance behaviors and the need for a level playing field that does not put newer employees at a disadvantage.

Prerequisites of an Effective Incentive System

• A good incentive plan should be simple, clear and easy to operate. An average worker should know the linkage of pay for performance.
• There should be active participation of workers and union while installing incentive plan.
• There must be a commitment on the part of the top management to the incentive program.
• The incentive plan should reward employees in direct proportion to increased productivity or quality.
• An incentive wage plan must be fair and equitable to both employers and the employees. It should be motivating to employees and economical to the management.
• The standards of performance and criteria for measurement should be fair, clear and aligned with firm’s strategy and objectives.
• There should be proper communication of details of the scheme to all the concerned persons.
• There should be a supportive environment from the employees for the scheme as any restriction can undermine the plan.
• The incentive plan should be in consistent with the corporate’ culture.
• The time gap between actual performance and reward should be as small as possible.
• There should be an atmosphere of mutual trust and understanding between employer and employee.
• A minimum wage rate should be guaranteed to every worker irrespective of his performance. It increases sense of security among workers.

A sound incentive plan should have the following essentials or requisites.

1. Simplicity: The incentive plan should be simple. It should be so simple that even an ordinary worker must be in a position to understand the contents of the scheme and must be able to calculate his earnings.
2. Plan should guarantee minimum wage: Incentive plan adopted must guarantee the minimum wage to all the workers irrespective of their working performance so as to ensure them a sense of security and confidence.
3. Worker’s Participation: Incentive plan should be accepted only after taking into confidence the workers and their union. Workers involvement ensures smooth flow of work.
4. Economical: The plan should be economical involving less clerical work. The benefit of the scheme should exceed the cost of operation of the scheme and plan should not involve elaborate records and complicated calculations.
5. Equitable: The plan should be fair, equitable and should cover all the employees. It must give equal opportunities to all workers to earn their wage incentives.
6. Clear understanding: The objectives of the scheme should be made known to all the employees so as to seek every employee’s co­operation.
7. Prompt payment: Wage incentives should be paid promptly whenever it has become due for payment. If the payment is delayed, workers may lose the faith in the scheme.
8. Conducive to workers health and safety: The plan should encourage the workers to earn adequate wages. The scheme should not over strain them which may tempt the workers to work hard to earn more which in the long run may affect on health of the workers.
9. Flexibility: The plan should give scope for making changes in accordance with the change in demand, market condition and government policy. Adjustability should be the glaring feature of sound incentive plan.
10. Fixation of Standard: For the purpose of payment of incentives, the standard fixed should be scientific and must be capable of reaching the standard by majority of workers without much strain.
11. Grievance Procedure: The plan should have effective grievance procedure to deal with complaints and dis-satisfaction of workers.
12. Performance Appraisal: There should be proper system of appraisal of the performance of employees so as to check the quality of output and to give guidance to the workers for improvement.

This theory was propounded by Walker. According to this theory, rent and interest are contractual payments. After deducting rent and interest from total product, the employer will deduct his profits. What remains after deducting rent, interest and profits is wages. It is possible to increase wages by increasing the total product by improving the efficiency of the workers.

This theory has several defects:

1. This theory assumes that the share of landlords, capitalists and entrepreneurs are fixed and it is absolutely wrong.
2. It is not the worker who is the residual claimant but the entrepreneur.
3. It does not explain the influence of trade union in wage determination.
4. The supply side of labour has been totally ignored by the theory.

Team-based incentive plans are initiatives designed to encourage and reward exceptional levels of professional achievement. You can use incentives in your small business as motivators for staffers to work collectively to earn monetary and non-monetary rewards. It is also a way for small business owners to boost overall productivity and earnings while simultaneously rewarding employees for a job well done. The objective of team incentives is to encourage group goal-setting, collaboration and teamwork.

Merit-Based Incentive

A more subjective approach to incentive programs is the merit-based incentive approach. Following this model, you reward employee teams for effort, regardless of outcome. For example, if your marketing employees stay late every night to finish a major advertising campaign that doesn’t perform as anticipated, their dedication and effort are still recognized. Because of the discretionary element of this type of incentive, it can be a challenge for employees to know what they aiming for or how they will know when their efforts or actions are viewed as “good enough” to merit reward.

Gain Sharing

Similar to a profit-sharing plan, gain sharing is a team incentive in which you reward employee groups for measurable, non-financial achievements in pre-established areas. For example, teams may enjoy a bonus if customer satisfaction levels rise a certain percentage above figures from the previous year. The focus of this type of incentive is for employees to recognize the role they play in continually moving your small business forward in key areas.

Goal-Based Incentives

Goal-based team incentives reward employees for reaching specific goals. For example, topping a certain dollar amount in sales, landing a specific number of contracts or hitting a membership recruitment figure. The approach encourages teamwork and gives employees a firm target to aim for. This incentive plan is good for small businesses because it promotes team work and collective effort, and you only issue the reward if the goal is met.

Profit Sharing

Profit sharing is a team-based incentive plan in which you pay your employees a percentage of your company’s overall profits. Profit sharing builds a sense of ownership among employees and encourages greater team performance levels. Staffers know that the better their performance, the better the business’s financial picture, and the higher their own potential cash rewards.

Financial vs. Non-Financial Incentive

It’s up to you, as the business owner, to decide what type of incentive you want to offer employee teams. If cash rewards are too much for your small business budget, other incentives to extend include paid time off, free company services or merchandise, or preferred parking or office space. Ask employees what they consider to be a viable and worthwhile reward and consider if it fits your budget.

Wages differ in different employments or occupations, industries and localities, and also between persons in the same employment or grade. One therefore comes across such terms as occupational wage differentials, inter-industry, inter-firm, inter-area or geographical differentials and personal differentials.

Wage differentials have been classified into three categories:

1. The differentials that can be attributed to imperfections in the employment markets, such as the limited knowledge of workers in regard to alternative job opportunities available elsewhere; obstacles to geographical, occupational or inter-firm mobility of workers; or time-lags in the adjustment of resource distribution and changes in the scope and structure of economic activities. Examples of such wage differentials are inter-industry, inter-firm, and geographical or inter- area wage differentials.
2. The wage differentials which originate in social values and prejudices and which are deeper and more persistent than economic factors. Wage differentials by sex, age, status or ethnic origin belong to this category.
3. Occupational wage differentials, which would exist even if employment markets were perfect and social prejudices were absent.

Type 1. Occupational Differentials:

These indicate that since different occupations require different qualifications, different wages of skill and carry different degrees of responsibility, wages are usually fixed on the basis of the differences in occupations and various degrees of skills.

The basic functions of such differentials are:

(a) To induce workers to undertake “more demanding”, “more agreeable or dangerous” jobs, or those involving “a great chance of unemployment, or wide uncertainty of earnings.”

(b) To provide an incentive to young person to incur the costs of training and education and encourage workers to develop skills in anticipation of higher earnings in future.

(c) To perform a social function by way of determining the social status of workers.

In countries adopting a course of planned economic development, skill differentials play an important role in manpower and employment programmes, for they considerably help in bringing about an adequate supply of labour with skills corresponding to the requirements of product plans.

Inter-occupational differentials may comprise skilled, unskilled and manual wage differentials; non-manual and manual (white and blue-collar); and general skill differentials. Occupational wage differentials generally follow the changes in the relative supplies of labour to various occupations.

Type 2. Inter-Firm Differentials:

Inter-firm differentials reflect the relative wage levels of workers in different plants in the same area and occupation.

The main causes of inter-firm wage differentials are:

(a) Difference in the quality of labour employed by different firms

(b) Imperfections in the labour market

(c) Differences in the efficiency of equipment, supervision and other non-labour factors.

Differences in technological advance, managerial efficiency, financial capacity, age and size of the firm, relative advantages and disadvantages of supply of raw materials, power and availability of transport facilities, these also account for considerable disparities in inter-firm wage rates. Lack of co-ordination among adjudication authorities, too, is responsible for such anomalies.

Type 3. Inter-Area or Regional Differentials:

Such differentials arise when workers in the same industry and the same occupational group, but living in different geographical areas, are paid different wages. Regional wage differentials may be conceived in two senses. In the first sense, they are merely a part of inter-industry differentials in a particular region.

“The industry mix varies from one area to another, and for this reason alone, the general average of wages would be expected to vary.” 22 In the second sense, they may represent real geographical differentials, resulting in the payment of different rates for the same type of work. In both cases, regional differentials affect the supply of manpower for various plants in different regions.

Such differentials are the result of living and working conditions, such as unsatisfactory or irksome climate, isolation, substandard housing, disparities in the cost of living and the availability of manpower. In some cases, regional differentials are also used to encourage planned mobility of labour.

Type 4. Inter-Industry Differentials:

These differentials arise when workers in the same occupation and the same area but in different industries are paid different wages. Inter-industry differentials reflect skill differentials. The industries paying higher wages have mostly been industries with a large number of skilled workers, while those paying less have been industries with a large proportion of unskilled and semi-skilled workers.

Other factors influencing inter-industry differentials are the extent of unionisation, the structure of product markets, the ability to pay, labour-capital ratio, and the stage of development of an industry.

Type 5. Personal Wage Differentials:

These arise because of differences in the personal characteristics (age or sex) of workers who work in the same plant and the same occupation. “Equal pay for equal work” has been recommended by the I.L.O. Convention (No. 100), as also by Industrial Courts, Labour Tribunals, the Minimum Wages Committee and the Fair Wage Committee. But in practice this principle has not been fully implemented because in occupations which involve strenuous muscular work, women workers, if employed, are paid less than men workers.

Lack of organisation among women employees, less mobility among them, their lower subsistence and their weak constitution are other reasons which bring them lower wages than their male counterparts receive.

Wage differentials that show the differences in the rate of wages among workers working in the same unit, different units, different occupations, different regions and the like have emerged as a common feature of labour markets in various countries.

Wage differentials bear a direct relationship to the diversity in occupation and industries that exist in the economic sphere of activity in a country. A certain job requiring a certain skill is paid more or less than another job requiring a different skill either in the same or some other industry. There are a variety of contributory factors.

Wage differential refers to differences in wage rates due to the location of company, hours of work, working conditions, type of product manufactured, or other factors. It may be the difference in wages between workers with different skills working in the same industry or workers with similar skills working in different industries or regions.

We will get different terms as occupational wage differentials, inter-industry, inter-firm, inter-area or geographical differentials and personal differentials because wages differ in different employments or occupations, different industries and localities, and even between the persons in the same employment or grade, etc.

If it is depressed, this will have some effect on wages and consequently on the grades. The rate of dearness allowance (DA) depending on the index chosen will affect wage differentials. In many situations, arbitration or judicial pronouncements have favored a higher quantum for the lowest category of workers.

On a wide scale, there has not been a systematic attempt at job evaluation – an exercise which would have identified the differences in terms of skill training experience, etc. between jobs and provided for relative weightages which could lead to standardization and eradication of distinctions for the same type of jobs.

In the modern organized sector, where collective bargaining is prevalent, there is a trend towards job evaluation schemes. The influence of collective bargaining in terms of pushing up wages in some industries and regions has been quite significant, especially in situations where collective bargaining is coupled with union strength.

Finally, the difference in terms of a unit’s level of productivity and profitability and its influence differentials has to be considered. If both productivity and profitability are high, then the wages sought and given are correspondingly bound to be high.

Salary Differentials and Economy Functions:

Salary differentials perform important economic, functions like labour productivity, attracting the people to different jobs. Since most of the workers are mobile with a view to maximising their earnings, wage differentials reflect in variations in productivity, efficiency of management, maximum utilisation of human force etc.

Attracting efficient workers, maximisation of employee commitment, development of skills, knowledge, utilisation of human resources, maximisation of productivity can be fulfilled through wage differentials, as the latter determines the direct allocation of manpower among different units, occupations and regions so that national production can be maximised. Thus, wage differentials provide an incentive for better allocation of human force, labour mobility among different regions and the like.

Salary differentials play pivotal role in a planned economy in the regulation of wages and development of national wage policy by allocating the skilled human force on priority basis. Development of new skills, knowledge etc., is an essential part of human resource development.

Shortage of technical and skilled personnel is not only a problem for industries but it creates bottlenecks, in the attainment of planned goals. Thus, wage differentials to certain extent, are desirable from the view point of national interest. As such, they probably become an essential part of national wage policy. Complete uniform national wage policy is impracticable and undesirable.

This theory was developed by J.S.Mill. According to him, the employers set apart a certain amount of capital to pay wages for labourers. This is fixed and constant. This is called as wages fund. Wage is determined by the amount of wages fund and the total number of labourers.

According to J.S.Mill, “wages depend upon the demand and supply of labour or as it is often expressed as proportion between population and capital. By population is here meant the number only of the laboring classes or rather of those who work for hire and by capital, only circulating capital………. “.

Wage rate = Wage fund / Number of labourers

An increase in wage rate is possible only by an increase in wage fund or by a reduction in the number of labourers. Thus there exists a direct relation between wage rate and wages fund and inverse relation between wage rate and number of labourers. This theory also states that trade unions are powerless in rising the general wage rate.

Criticisms:

1. Wage fund theory states that the wage rate is found by dividing the wage fund by the number of workers. But it does not tell us about the sources of wages fund and the method of estimating it.
2. Wage fund theory is unscientific and illogical because it first decides the wages fund and then determines wages. But in reality, wages should be found first and from that wage fund should be calculated. This theory neglects the quality and efficiency of the workers in determining the wage rate. This is considered to be a basic weakness of the theory.
3. This theory neglects the quality and efficiency of the workers in determining the wage rate. This is considered to be a basic weakness of the theory.
4. This theory assumes that wages can increase only at the expense of profit. This is not correct. The operation of the law of increasing returns will lead to a great increase in total output which may be sufficient to raise both wages and profits.
5. The wages fund theory has been criticised by the trade unions for its assumption that wages cannot be increased through bargaining.
6. Wages fund theory has failed to explain the differences in wage rate.
7. This theory believes that wages are paid out of circulating capital. But when the process of production is short, wages are paid out of current production. When the process of production is long, wages are paid out of capital.

The subsistence theory of wages was first formulated by Physiocratic School of French economists of 18th century. Further, this theory was developed and improved upon by the German economists. Lasalle styled it as the Iron Law of Wages or the Brazen Law of Wages. Ricardo and Malthus also contributed to the theory of wages. Karl Marx made it the basis of his theory of exploitation.

Assumptions:

According to Ricardo, this theory is based on the following two assumptions:

1. Population increases at a faster rate.
2. Food production is subject to the law of diminishing returns.

According to this theory, wages of a worker in the long run are determined at that level of wages which is just sufficient to meet the necessaries of life. This level is called the subsistence level. The classical economists called it the neutral level of wages. In this way, the pro-pounders of the theory believed in the bargaining power of the workers. In such a situation, trade unions play an important role in increasing wages.

Wages of labour are equal to subsistence level in the long ran. If wages fall below this level, workers would starve. It will reduce their supply. Thus, the wage rate will rise to the subsistence level. On the other hand, if wages tend to rise above the subsistence level, workers would be encouraged to bear more children which will increase the supply of workers, which in turn will bring wages down to the subsistence level.

Criticism:

Following are the main defects of the subsistence theory of wages:

One Sided Theory: This theory examines the wage determination from the side of supply and ignores the demand side.

Pessimistic: Subsistence theory of wages is highly pessimistic for the working class. It presents a dark picture of the future of the society.

Long Period: This theory is based on the assumption of long run. It does not explain the determination of wages at a particular period of time.

No Historical Evidence: This theory has been criticized on the grounds that it has not been correct in conclusions. The case of western countries is different from the conclusions of this theory.

No Difference in Wages: This theory explains that all the workers get equal wages. As we know, the workers differ in their productivity, and hence, the difference in their wages is natural.

It can be shown with the help of the following figure:

In Fig. 1 demand and supply of labour has been measured on OX-axis and wage rate on OY-axis. OW is the subsistence level of wages. At OW wage rate supply of labour is perfectly elastic. Since, supply of labour is perfectly elastic, wage rate neither can fall below OW nor can increase above the level of OW. Although demand increases from DD to D1D1 yet the wage rate remains the same at OW.

• Pay for Position: Pay for position, Position based pay or Job-based pay, pays employees for the job to which they are assigned, regardless of the skills they possess. In other words, pay is centered on the job or position and not on the person. Pay for Position is a more traditional pay structure in which each position is assigned a pay range based on the job duties and pay is based on education and seniority. Employee compensation is set in broadband based on qualifications, education, training & experience Through broad banding, narrowly structured pay grades determined through job evaluation, are replaced by fewer and wider bands Employees progress up through broad band if their performance ratings are good, rather than through steps based on time in the grade It reduces different compensation categories to broad compensation bands, grouping jobs together by common characteristic. Develop an equitable grading structure. Create a reference salary structure. Leverage compensation costs with market survey information
• Pay for Person: Pay for Person or Person focused pay or Skill-based pay or Knowledge-based pay or Competency-based pay structures link pay to the depth or breadth of the skills, abilities, competency and knowledge a person acquires and applies to the work. Structures based on skill, pay individuals for all the skills for which they have been certified regardless of whether the work they are doing requires all or just a few of those particular skills. The wage is attached to the person.

The pay increases are usually tied to three types of skills: horizontal skills, which involve a broadening of skills in terms of the range of tasks. Vertical skills, which involve acquiring skills of a higher level depth skills, which involve a high level of skills in specialised areas relating to the same job. Because skill-based pay encourages and rewards a broad range of skills, the employee becomes multi-skilled and more flexible and valuable; A job rotation is used to fill in temporary gaps in the workforce.

Pay for person takes into account the demonstrable characteristics of a person, including knowledge, skills, competency and behaviors, that enable performance. Take into consideration the person’s capabilities & experience in setting a pay level that is both equitable and competitive. It considers the market demand of a person’s unique skills and experience. It also incorporates market-based pay approach

Determine competency/skill requirements and employee capabilities. Pay individuals based on their competency/skill match with position. Identify and pay market premium for competencies/skill in short supply in the market.

• Pay for Performance: Pay for Performance, Performance related pay, Performance-based pay is a financial reward system for employees where some or all of their monetary compensation is related to how their performance is assessed relative to stated criteria. The criteria for performance-related pay scheme may be based on individual, group or organizational performance, or on a mixture of them. Individual-based criteria would require, individual goal-setting, an appropriate performance appraisal system, individual training to increase job knowledge & skills and the individual should have a large measure of control over his/her own performance. Team based criteria are appropriate where individual performance is difficult to measure, or where there is a need for a corporate culture to promote team values and cooperation.

Design annual bonus and incentives plans that motivate staff Shift from merit salary increases to variable pay. Create long-term reward plans – stock options and deferred compensation.

Various trends are emerging in compensation management. As new organizations are emerging, so also are new methods of compensation. Here is an attempt to find out the emerging trends in the sales force compensation methods and its implications for modern-day sales management. We can classify the emerging trends in compensation into four broad categories. The most important trend has been the compensation plan based on the idea of customer satisfaction.

Today, the sales force is not compensated only on the basis of sales volume. The level of customer satisfaction is an important tool of evaluating and rewarding the salespeople. A company like Xerox is the pioneer in designing a compensation plan based on customer satisfaction. It follows a compensation plan based on customer satisfaction defined by the customer itself. This serves as a challenge for the salespeople to achieve the customer-defined satisfaction level.

Another emerging trend is team-based compensation. Though the idea has a Japanese origin, it has found acceptance all over the world. Majority of the B2B selling is done through the team selling strategy and cross-functional teams are designed for handling customer objections in a better way. Clients are also going international in their business operations, and hence customer management is done by more than a single contact point or salesperson.

More and more key account and national account managers are coordinating with the local salespeople to close a sale at multiple points. Many customers are now operating across the territories and geographical boundaries. The organizations need to address their demands and problems at multiple points and in multi-location situations. Hence, it is important to have sales teams.

The performance of the individual salesperson is now linked to the performance of the salespeople in other territories catering to the same set of customers. So companies are replacing the standard straight salary- based or commission-based compensation with team-based compensation, which links the pay of the salespeople with the performance of the customer service personnel, delivery people, and managers heading and supervising the teams.

The technological advances have changed the horizon of customer handling by the salespeople. In the past, the salespeople had to visit every customer to fulfil the information requirement of the customer. Today, email management systems, broadband technology, videoconferencing, and other Web-based technologies enable the salespeople to respond to the customer’s increasing and evolving information need easily and faster.

The customers are also happy with the non- personal form of communication with the salespeople as it leads to lower cost of service and lesser interference by the salespeople at the customer’s place. The e-commerce application has made the communication between the buyer and the seller more interactive and less interfering in nature.

This has made the sales job more target-oriented, as salespeople now can concentrate more on real sales activities than on feeding existing customers with relevant market information, and thus, it has led to an increase in their compensation level due to higher sales realization.

Customers are now spread across the globe and the salespeople serve them by innovative technology and operating across different boundaries and time limits. This has brought the issue of global compensation management systems. Previously the general im­pression was that third world countries are poor in customer care and quality product deliveries, but more and more companies from the West are changing their perception.

Today, majority of customer care and sales service jobs are outsourced to third world countries due to availability of cheap labour and quality of service output. It is a challenge for management to compensate the global sales force working in different countries in different cost zones through an equitable and flexible compensation plan.

Similarly, the challenge is to compensate the sales force with people from various countries but working in the same workplace. While an Indian salary may not be suitable for the European executives in India, the salary paid to an Indian working in the US at the Indian rate may not be adequate for him/her. Therefore, it is also necessary to equate the salary levels of people working in different countries or economy zones.

Compensation plans should be perceived as equitable across the organization. It is observed that the salary structure is low at the base level where the real sales happens and goes higher as one moves farther from the customers to the upper hierarchy levels of the organization. This is a growing trend, which may hamper the growth of many organizations.

It is important to project the sales compensation as equitable for all levels in the sales organization. In many sales, organizations the standard Indian compensation is not equitable from various points of view, including gender inequality.

Male and female employees are paid differently in many com­panies although they are doing a similar kind of job. The management should beware of such discrepancies and try to eliminate them for an effective and equitable compensation plan.