Compensation tied to sales 2553

  • What are your thoughts on non sales people’s compensation / bonus being tied to sales, especially in the ‘tone at the top’ context?

  • Variable compensation that is based on sales, profit, a stock price or total shareholder return is not necessarily a bad thing. Variable compensation may be intended to stimulate performance if the compensated person can actually influence the performance measure to which his or her compensation is tied. On the other hand, a company may use variable compensation just to be more flexible to pay more in good times and pay less compensation in bad times to maneuvre more easily in down turns.
    The variable compensation for a lot of lower-level employees is often tied to the overall profit of the whole group of companies, a measure they can hardly influence.
    The higher the amount of compensation based on sales compared to the fixed salary and the higher the possibility that the employee can manipulate sales, the more controls mitigating the risk of manipulation you need.

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