Compensation Can Be Creative

    April 15, 2002

As stores seek innovative ways to increase sales, compensation ideas have become creative as well. And, some of your best ideas might even come from the salespeople themselves. As you evaluate some of the options available to you, here are some points to keep in mind.

Involve employees

Employees find it highly energizing to be involved in the decision-making process. Just having the opportunity to brainstorm with business owners and managers and to offer suggestions motivates individuals to put their best foot forward —- especially if they know their ideas are taken seriously. You will also get a better understanding of what will best motivate your employees. By the same token, the employees will have a clear picture of how the compensation structure was determined and a chance to influence the process. In seeking employee input, make sure that:

The team is clear about the company’s goals, sales forecasts, etc.
The job descriptions are up-to-date and accurate. What is expected of sales managers, full-time salespeople, part-time salespeople?
The performance appraisal process easily identifies and tracks sales and achievements.

Commission-Based Plans

According to compensation expert Janet Larson, typically, when a sales position has the primary responsibility of persuading the customer, the pay mix is 70% base and 30% incentive pay. The pay at risk generally rises as more of the job duties include selling skills, and decreases when selling skills are not the major focus.

In commission-based compensation, Larson suggests that you offer a portion of every sales transaction to the salesperson — but be creative in how you calculate the commission, for example:

Offer 2 percent of total sales dollars, or
Give 25 percent of all gross margin dollars, or
Grant a specific dollar amount for each unit sold.


There are a number of ways to offer bonuses that are innovative, motivating, and tied directly to the goals of the company. Larson recommends a number of ideas such as:

Use a quota basis in which a target has been identified. For example, 25% of base salary is paid for reaching a target goal.
Provide a bonus for attaining multiple goals, such as $100 for reaching the sales goal, $50 for keeping returns below 10%, and a 2% bonus for a multiple-item sale.
Provide a step bonus program for different levels of achievement. For instance, for each 5% above quota, offer a 10% bonus — which may be a percent of base salary, range midpoint, or a fixed-dollar amount for all sales combined.
Offer a point plan. Points are accrued for achieving certain goals and can be converted to cash or merchandise.


Incorporating a reward into some sort of contest that builds anticipation and momentum for attaining certain sales goals is another way to motivate your sales associates. While it is important to allow employees to excel and to be recognized for their individual achievements, contests that focus on promoting the efforts of the group entice people to work together because it rewards all of them if the goals are met.

A poorly conceived contest with unrealistic goals can do more harm than good, lowering morale and reflecting negatively on management. A program that is done well can create loyalty, increase sales and build camaraderie. There are several key steps to keep in mind when creating an effective contest:

1. Promote the program and its purpose. To keep employees’ interests, the contest must be viewed as both fun and exciting. To keep momentum high, provide regular updates so that employees can see how their performance relates to the overall objectives of the contest.

2. Set realistic, achievable and measurable goals. Nothing is more defeating than dangling a carrot that can never be reached. Employees need to feel that all they have to do is put forth a bit more effort in order to reach their goals.

3. Limit the contest to a short period of time. Short-term objectives that generate fast results are most effective. Two to three months seems to be optimal.

4. Keep the contest rules simple. If a contest is too complex and difficult to track, employees will not participate.

5. Ensure prizes are desirable to employees. Rewards do not have to be grand. And, they don’t even have to be monetary — the thrill is often in the victory itself. To be motivating, however, rewards should be matched to the unique needs of those you are trying to motivate. Ideally, employees should select the prize they want to work for.

6. Link rewards directly to performance. Employees must have a clear understanding of what level of performance to achieve in order to win. And, the prizes must relate specifically to accomplishing the objectives.

7. Give rewards and recognition promptly. To keep them focused and enthused, share results with sales associates and recognize their efforts on a daily basis. For example, list their accomplishments on a bulletin board in the office or post them on the company intranet.

Contests can also be used just to bring a little levity to the store. Ideas are limited only by your creativity. Hold a raffle for sales associates, giving away lunch, dinner, a manicure, movie tickets, or a chance to decorate the mannequins. Hold a drawing at regular sales meetings and give away breakfast with the manager, an extra coffee break for that day, or a longer lunch hour

Consider Intangible Rewards

Although salespeople tend to be clearly motivated by money, money is not the only motivator in having them do a good job. Increasingly, today’s salespeople expect more from their job in the way of feeling values, respected and appreciated in the organization if you want them to perform at their best.

Empowerment — giving employees the responsibility and the authority to get things done their way — can unleash tremendous amounts of worker energy. For example, all sales associates at Alcoa, Tennessee-based Parisian’s department stores are encouraged to make independent decisions in solving customer complaints; the only person who can say “no” to a customer is the store manager. This policy energizes employees by empowering them to think for themselves, rather than deferring to management. Employees also learn to live by the company’s first rule: Never let a customer leave unhappy.

Owner Katherine Barchetti assigns each of the salespeople at her clothing stores in Pittsburgh responsibility for certain items of merchandise — a particular brand and style of belt, for example. Salespeople fully manage the product line they have been assigned, from buying and maintaining inventory to marketing and selling it.

Barchetti also believes that fostering team spirit energizes her employees and draws them together into a cohesive unit in which everyone pulls together to reach a common goal: provide the customer with a positive shopping experience. Her sales associates work in informal, ad hoc teams. As one associate greets a customer, another looks up his or her record on the store’s computer database while still another pulls merchandise from hangers and shelves and brings it to the customer.

Putting it All Together

Creative compensation plans will do a lot to motivate salespeople to achieve certain objectives. But remember, the focus should not be solely monetary. Even the best compensation strategy needs to be supported by ongoing, intangible forms of motivation. Today’s workers are energized by having a sense of responsibility and fulfillment. Just knowing they make a difference can motivate them to put their best foot forward.

Bob Nelson, Ph.D., is president of Nelson Motivation Inc and a best-selling author of 1001 Ways to Reward Employees (now in its 52nd printing), 1001 Ways to Energize Employees, The 1001 Rewards & Recognition Fieldbook, The Management Bible among others, and teaches organizational behavior at the Rady School of Management at the University of California, San Diego. For more information or to register for Bob’s FREE Tip of the Week visit