The Importance of Getting the Pay Mix Right

The importance of getting the pay mix right for the different roles in your company especially sales staff

Pay mix is the proportion that the guaranteed pay (GP) and variable pay (VP) make-up of the total pay. There are two ways of expressing it:

1. % of total pay being 100%
2. % of guaranteed pay being 100%

As an example: Assume a salesperson receives monthly guaranteed pay of R25 000 and target sales incentive/commission (TI) is R15 000. Target earnings are R40 000.

The pay mix is:

1. 25 000/40 000 = 62.5% and 15 000/40 000 = 37.5% i.e. a pay mix of GP/VP 62.5/37.5
2. 15 000/25 000 = 60% i.e. Target VP = 60% of GP.

The pay mix can be more conservative as in 80/20 or more assertive 40/60. By setting the pay mix, one is trying to change the behaviour:

1. The more conservative, the less pay is at risk and hence the variable pay is less of a driver. A conservative pay mix is better for sales that take a long time and are more relationship based.
2. The more assertive the pay mix, the bigger the drive will be on making the sale. This is better for sales that are quick sales and ongoing relationships are less important.

When a business considers the pay mix of employees with a sales responsibility, there are several factors that should be taken into consideration.

The factors that affect the pay mix and should inform the weighting of your pay components are –

More weight on base pay

• Selling is more of a team effort
• There is heavy use of promotions and advertising
• Product or service requires little sales effort
• Job includes many non-sales duties
• Longer sales cycles
• Greater emphasis on relationships and consultations
• Few large sales
• Provides leads or access or fulfilment only
• Provides key expertise
• Speciality or custom products
• Product sold on value

More weight on incentives

• Selling is largely an individual effort
• Limited expertise required
• The company is not well known
• A product is sold on price
• Competition is strong
• Low career advancement opportunities in a company
• The market opportunity is significant
• Transactional process
• Product focus
• Many, frequent sales
• Short sales cycle
• Commodity products

The pay mix determined should be considered for each sales role in a company.