Develop a compensation program that recognizes the lifestyle and standard of living of all employees.

All organizations have a compensation plan, written or unwritten, formal or informal. For some organizations, the purpose of that plan may be merely to meet compliance requirements. For other organizations, the goal of the compensation plan may be to attract qualified employees, to retain those employees, and to motivate employees to direct their efforts towards achieving the goals of the organization. Regardless of the goal, size and complexity of a compensation plan, there are generally many easily-identified elements to any compensation plan. Compensation Management Compensation Management provides a step- by- step approach for designing remuneration system that recognizes job requirements: employee- related knowledge and skills; and performance related incentives that link individual, team, work unit, and organization performance. Compensation Program Compensation programs design a number of payment schemes: wages associated with the amount of hours spent at work, wages gained from productivity while working, health benefits, and bonuses. To develop a competitive advantage in a global economy the compensation program of the organization must support totally the strategic programs and action of the organization. The individuals occupying the executive position of the organization are responsible for establishing and developing strategy of the organization. Human resources compensation specialist, the assignment to ensure accomplishment of organizational strategy beings with determining I. II. III. IV. The work that must be performed by some work unit or individuals, The kinds and levels of knowledge and skill required The quality of people needed to promote organizational success and The rewards the organization can offer to its members that promote a culture that ensures accomplishment of organizational strategy.

For the human resources compensation specialist are design a compensation components, which are influenced to motivate the employee for their specific goal. These components are shown in a schematic model in the below-

A human resources or compensation strategy that fulfills preceding four requirements will provide a competitive advantage to the organization. Of equal importance, these efforts in developing an organizational structure that promotes effective use of all available resources. A number of steps should be followed in order to develop an employee compensation program.

Define our objectives All organizations need to program; they must have an idea of what they want to do. Compensation objectives should be identified and articulated as part of the overall programning process. They should be in tune with the organization's other goals and objectives and should result in a staff that is appropriate for carrying out the organization's program. For example, an organization's compensation objective may be to have in place a cost-effective program that will attract, motivate, and retain quality employees.

Review and document our situation The strengths and weaknesses of the current compensation practices must be assessed in order to know what issues to address in developing a new or better program. Define and describe jobs Well-defined job descriptions are central to any compensation program because they provide the basic data for job comparison and evaluation. Job descriptions also provide guidelines for recruitment, selection, and supervision, and they provide the employee with a sense of direction and purpose. Evaluate jobs relative to one another It is necessary to compare positions internally in order to establish their relative value and the relationships between them. Generally, jobs are measured against common standards and ranked accordingly. Almost all of the methods for comparing jobs involve looking at the skills required, effort needed, responsibility involved, and working conditions.

Evaluate jobs relative to other employers

In order to develop a compensation program that is logical and competitive, it is necessary to collect data about other employers. External data collection involves looking at the outside labor market. Obviously, it is not necessary to look at the entire labor market. Organizations need to identify their competitors in the labor market and look at how they compare with them.

Establish a structure At this point you are ready to establish a compensation structure. The first element of any compensation structure is a compensation policy, which should be a general statement about what the organization's compensation program is intended to accomplish and where the organization wants to be compared to the market place.

The final step in establishing a compensation structure is to determine the fringe benefits. Numerous studies have shown that employees consistently underestimate the value of fringe benefits, and they rarely consider the value of increased benefits as part of an annual compensation increase. The fringe benefit program can include a wide variety of benefits such as vacation leave, sick leave, health and life insurance, tuition reimbursement, retirement programs, deferred compensation, etc. There are two main components of compensation system. These are direct component and indirect component. Direct components include base pay, merit pay and incentive pay. Employees base pay can be classified into two categories. Sometimes organization provides some additional benefits like bonus, commissions, price rates, profit sharing and stock options. Indirect components include protection program, pay for time not worked and service benefits. Now we describe about these three components in belowProtection program includes employees medical and life insurance, disability income, pension programs and social security. Organizations provide a wide variety of insurance programs to assist in paying for these goods and services. Medical, hospital and surgical insurance programs and major medical, dental and vision insurance are only a few of the numerous compensation components designed to provide such protection for workers. The possibility always exists that a worker will incur health or accident disability. Because of these disabilities employees are frequently unable to perform their normal assignments. Pay and Social class Today with the continued prosperity, let alone survival of the nation in perils it is important to recognize the relationship among pay, earnings and social structure within the country.

Social structure and Income For hundreds of years, those involved in the identification of social classes have used a variety of criteria for determining who should be in a particular social class. Today, in capitalistic democratic nations, one criterion can be used to the class of an individual or family unit and that is income. The topical upper, middle and lower class divisions can be separated further into seven subsets. Each of these subsets defines a significantly different standard of living based on family income. The three classes seven subset classes and annual income intervals are shown in below-

Upper

Class Ultra rich Wealth

Family of four annual incomes Over 1000000 taka 250000 to 10000000 taka 100000 to 2500000 taka 60000 to 100000 taka 35000 to 60000 taka 19000 to 350000 taka to 19000 taka

Middle

Upper Middle Middle -Middle Lower Middle

Lower

Working Poor Poverty

Life Style and Social class To appreciate the importance of employer provided pay, it is necessary to have under- standing of the lifestyle and standard of living dedicated by pay, earnings and income. The study found that the lower the income is the higher the stress level is. People who seemed to be best off had income between 45000 and 60000tk. If this study continues to be valid, the income a decade later should be between 55000 and 60000tk.

To develop an effective compensation structure employer should be fair thats why employees can be treated fairly. Thus equity theory suggests that individuals determine whether they are

being treated fairly by comparing their own outcomes inputs ratio with the outcomes input ratio of someone else. When an employee think he is not fairly treated dissatisfaction may obviously come from his mind ad due to this dissatisfaction his motivation level may also reduces which directly affect the organizations productivity. A dissatisfied employee may reduce his effort, seek job to another places and may quit the job for that reasons organizations productivity are hampering and decreasing day by day. So managers or employers should set an equitable pay rates for the employees based on their skills, abilities and requirements thats why organizations performance and productivity may increases. There are three main types of pay policies those are required employers or managers to set an effective compensation program. This are-

Pay Raises Employers compute pay raises in two ways. Many have merit pay policies. The basic idea is to tie each employees annual raise to the employees performance. If the employees performance is good company should raise his salary and giving extra incentive to him. So organization should concern this issue carefully. Salary Compression How to handle salary compression is a key policy issue. Salary compression means longer term employees salaries are lower than those of workers entering the firm today, and creature of inflation. This policy may vary from industry to industry. Majority of the organization pay high salary to the senior employees rather than fresher or junior. Those types of company establish their salary structure on the seniority basis rather than considering other factors.

For study with the employee standard of living and also lifestyle of consumption pattern in context of our country, I have concluded a sales compensation program which is a challenging topic for many employee because they think in terms of absolutes. Unfortunately there are very few standards that apply to sales compensation. The variations in sales compensation programs are infinite and the published research that provides compensation details (salary or draw + commissions + bonuses + other incentives) by industry or geography is quite expensive. This makes sense when you think about it - if a company has managed to develop an effective sales compensation program, what incentive do they have to share it with others?

Here is the best advice I can give to help you develop an effective sales compensation programPay less attention to what other companies are paying and more attention to developing a sales compensation program that:
1. Takes into account the profitability of our companys various products and services, and 2. Motivates desired sales behaviors

If run an ad for a 100% commission sales job, what kinds of candidates are likely to see? Usually they will fall into the following three categories:
1. Manufacturers' Representatives: These salespeople work as independent contractors, not

employees. Usually they sell a portfolio of products and services on behalf of multiple clients. Make no mistake - these are mercenary salespeople. The amount of time and effort they will invest in selling our company's products or services will correlate directly with the amount of return they feel they can earn on their investment. If other client companies offer more lucrative compensation programs, a monthly retainer, or do a better job of providing leads, don't expect to see much activity for our company's offerings.
2. Newbies: These candidates are exploring sales as a career for the first time. Because of

their lack of experience, they may have difficulty finding jobs that aren't 100% commission; or, they just may not know any better. Newbies may or may not have the talents required for success in our specific sales job (80% of them won't), and they probably don't have the first clue about how to build a sales opportunity pipeline. Still, they may be willing to come on board and grind away for a few weeks. However, if they don't luck into some early sales, chances are they will drift away and look for an employer that is willing to teach them HOW to sell and PAY them something while they are learning.
3. The "Other 80 Percent": It is rare for a salesperson with both talent and experience to

consider a 100% commission sales job. If an "experienced" salesperson is willing to take our 100% commission sales job, they usually belong to the 80 percent of salespeople that produce 20 percent of sales! Perhaps this salesperson is making a last-ditch effort before giving up on sales. Perhaps they need to be able to say they are employed while they search for another job. At any

rate, the odds are very poor that one of these salespeople will ever deliver more than mediocre performance. 100% Commission Concept That CAN Be Successful There is just one 100% commission concept that I have seen produce good results with some consistency. It is where:

The company supplies most or all of the salesperson's leads The leads are of reasonably good quality The sales cycle is relatively short (ranging from a one-call close to no more than several weeks in length)

This combination of circumstances can enable salespeople to begin earning commissions quickly. Plus, they don't have to prospect, which is an attractive proposition to many salespeople. This increases the chances that quality salespeople will be willing to accept the position and be able to earn enough money to motivate them to stay in the position. Providing an Income Floor Sales compensation programs that attract and motivate quality salespeople usually include some type of "income floor". This is a guaranteed minimum amount of compensation that the salesperson earns within a specified time period. An income floor is usually provided in one of three ways: via a Salary, a Recoverable Draw, or a Non-Recoverable Draw. Here are definitions for these three terms:

Salary: This is a fixed amount of money that is paid within a specified time period. Any commissions earned (if applicable) are paid in addition to the salary. Recoverable Draw: This is also a fixed amount of money that is paid within a specified time period. Think of it as commissions paid in advance. If the actual commissions earned during the time period exceed the draw amount, the salesperson is paid the difference at some later date. However, if the actual commissions earned during the time period do not equal or exceed the draw amount, the salesperson owes the company the difference. Any commissions in excess of draw that are earned in future time periods will first be applied to liquidate any negative balance in the salesperson's draw account before commission payments are made to the salesperson. Non-Recoverable Draw: This is also a fixed amount of money that is paid within a specified time period. Just like with a Recoverable Draw, if the actual commissions earned during a time period exceed the draw amount, the salesperson is paid the difference. However, if the actual commissions earned during the time period do not equal or exceed the draw amount, the salesperson does NOT owe the company the difference. The slate is "wiped clean" at the beginning of the next time period.

The following two tables demonstrate the difference between a Recoverable Draw and a NonRecoverable Draw. Recoverable Draw Example Time Period Draw Paid Actual Owed to Commission Total Commissions Company Paid Earnings TK.1,000 TK.12,000 TK.13,000 TK.16,000 TK.41,000

Month 1 TK.10,000 TK.4,000 Month 2 TK.13,000 TK.2,000 Month 3 TK.15,000 TK.5,000 TOTALS TK.28,000 TK.11,000

TK.1,000 (TK.1,000) TK.1,000 TK.2,000

Non-Recoverable Draw Example Time Period Draw Paid Actual Owed to Commission Total Commissions Company Paid Earnings TK.1,000 TK.2,000 TK.3,000 TK.14,000 TK.13,000 TK.15,000 TK.42,000

Month 1 TK.13,000 TK.4,000 Month 2 TK.13,000 TK.2,000 Month 3 TK.13,000 TK.5,000 TOTALS TK.39,000 TK.11,000

What is the difference between a Non-Recoverable Draw and a Salary? The primary difference is a non-recoverable draw can eliminate a potential fairness concern that can arise when a company uses a salary + commission compensation program. The best way to explain this fairness concern is by reviewing an example. Sample Company has an annual revenue target for each salesperson of TK.1,000,000. Management is willing to pay 10% of this revenue (TK.100,000) as total annual salesperson

compensation. Annual base salaries range from TK.40,000 to TK.60,000 based upon salesperson experience and need. The balance of each salesperson's compensation is commission. If a salesperson receives a base salary of TK.60,000, their target annual commission compensation is TK.40,000. Assume that commissions are calculated by applying a multiplier against each dollar of revenue that the salesperson produces. To calculate the multiplier, divide the target commission compensation (TK.40,000) by the revenue target (TK.1,000,000). This produces a multiplier of .04. If a salesperson receives a base salary of TK.40,000, their target annual commission compensation is TK.60,000. Dividing the target commission compensation (TK.60,000) by the revenue target (TK.1,000,000) produces a multiplier of .06.

The following table compares the earnings produced by these two compensation programs at three different levels of sales production. Compensation Comparison for Salary + Commission Programs Annual Sales Volume TK.800,000 TK.800,000 Annual Commission Earnings TK.48,000 TK.32,000

Multiplier .06 .04

Annual Salary TK.40,000 TK.60,000

Total Earnings TK.88,000 TK.92,000

TK.1,000,000 TK.1,000,000

.06 .04

TK.60,000 TK.40,000

TK.40,000 TK.60,000

TK.100,000 TK.100,000

TK.1,200,000 TK.1,200,000

.06 .04

TK.72,000 TK.48,000

TK.40,000 TK.60,000

TK.112,000 TK.108,000

As you can see, the salesperson with the higher base salary will have higher total earnings when the annual sales volume produced is less than the target of TK.1,000,000. Both salespeople will earn exactly the same amount if they hit the annual sales target on the nose. When production exceeds the annual sales target, the salesperson with the lower base salary will have higher total earnings. The fairness concern is that these two salespeople can earn different amounts of compensation for selling exactly the same amount! This fairness concern is eliminated when a Non-Recoverable draw is paid instead of a Salary. In a non-recoverable draw compensation program, the multiplier for both salespeople would be TK.100,000/TK.1,000,000 = .10. This multiplier would be applied against every dollar of revenue produced to calculate actual commissions for each period. The non-recoverable draw would be subtracted from each period's actual commissions, and any positive difference would be paid to the salesperson in the next period. Under the non-recoverable draw model, at any level of annual production, both salespeople earn exactly the same amount as long as their monthly production exceeds their non-recoverable draw amount. If actual commissions are lower than the non-recoverable draw by large amounts or with any regularity, the fairness concern will be resurrected, as the individual with the higher draw will show higher annual earnings.

Additional incentives I also want to consider adding additional incentives to our sales compensation program. Common incentives include offering fixed dollar bonuses or multiplier kickers to promote team selling, cross-selling, sales of specific products, or increases in customer satisfaction. These incentives can motivate desirable behavior in some circumstances, but this motivation comes at the price of adding complexity to the sales compensation program. When a sales compensation program becomes so complex that salespeople cannot rapidly calculate how their performance will impact their compensation, the program loses much of its motivational value. Here are two real-life examples of highly effective incentives: 1. Quarterly and Annual Bonuses: In one of my sales jobs the compensation program included a TK.5000 bonus for achieving budget during a quarter and another TK.5000 bonus for achieving the annual budget. As a result, salespeople could earn a total of TK.25,000 in bonuses (in addition to salary and commissions) if they achieved each of the four quarterly budgets and the annual budget.

I can personally vouch for the motivational value of this type of bonus program. One year I earned the first three quarterly bonuses and sold enough during those three quarters to also earn the annual bonus. Yet, there was still one quarter to go. My pipeline was pretty tapped out, yet I really wanted to go five-for-five and earn the final bonus. I ramped up my prospecting activities and ended up selling more in the final quarter than I had sold during the previous three quarters combined! Needless to say I earned the final quarterly bonus...along with some very fat commission checks. Im sure my employer had no problem writing those checks - they earned a lot more from my sales than I did! 2. Reward Trips: Another sales incentive that consistently caught my attention was an allexpenses-paid trip to an exotic location. A very small percentage of the company's salespeople and sales managers could win the trip each year, and the winners were joined at the exotic location by the company's top executives.

This promotion was motivating for several reasons that included:

Wanting to earn recognition as one of the company's top salespeople Wanting to "rub shoulders" with the company's top executives (which could lead to future promotions) A spouse or significant other wanting to enjoy trips to exotic locations (never discount the power of this type of "indirect" motivation!)

Clearly it is possible to motivate salespeople by offering incentives that go beyond salary and commission.

Conclusion: If an organization chooses to implement a performance-based pay program, then compensation professionals must ensure that their merit-pay programs measure performance objectively and management must carefully evaluate performance to make judgments regarding pay differentials. Organizations find that an audit of the compensation plan is a useful tool for educating management, thus increasing their understanding and support of the pay program. It is recommended to conduct a comprehensive audit at least every two years in order to identify problem areas and resolve them as soon as possible.