Rebalancing Fixed and Variable Pay in a Sales Organization: A Business Cycle Perspective
Compensation & Benefits Review, Vol. 42, No. 3, May / June 2010, pp 179-189
17 Pages Posted: 3 Mar 2010 Last revised: 3 Feb 2014
The business cycle has a significant impact on the revenue and profitability of sales organizations and directly influences sales compensation costs. Operating leverage is a key variable affecting business performance during different stages of business cycle. Rebalancing fixed and variable pay in the compensation structure helps organizations in the effective management of operating leverage in business cycle stages. This article provides a framework for properly designing pay structure and determining how much pay should be fixed or variable, according to different stages of business cycle. It also explains the relationship between job challenges and compensation structures. By synchronizing sales force compensation structure with the business cycle, organizations can design optimal compensation strategies.
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