Managing Sales Compensation Across the Economic Cycle

Abstract

Sales organizations need to closely scrutinize the role of their sales force and its overall compensation costs. If organizations adapt to the changing internal and external environment, they are likely to be more successful and profitable. The sales force compensation plan should be compatible with the changing nature of the job, depending on stages of economic cycle. The economic life cycle stages are likely to be a key determinant of sales compensation strategies and their effectiveness in achieving organizational goals. Sales organizations must design a compensation strategy based on sales efforts and market dynamics according to economic cycle. Sales organizations must reassess their sales force structure and associated compensation plan across the economic cycle. This article illustrates economic as well as a noneconomic analysis for optimal choice between direct sales reps and independent reps. Various frameworks provided in this article will help managers of sales organizations in effectively managing compensation costs across the economic cycle.