Should Salespeople Get a Fixed Salary Raise or Rely on Bonuses for Growth?

Question on Salaries and Increment System

We run a multiproduct trading company in exports. In our company, we employ several salespersons with a monthly salary range of Rs. 35,000 to Rs. 75,000. Besides this, they receive an annual performance bonus ranging from 1 to 8 lacs per person, which is directly proportional to their sales in their area.

Their job profiles remain unchanged year on year. The company structure is usually quite flat, so they all continue to report to the Head of Sales. The products they are selling, payment terms, profit margins, and areas of operations also remain more or less similar every year. They do have sufficient opportunity to increase their sales by adding new customers, areas, and products if they are able to, since we have a relatively small market share of the total space.

There is no restriction on capital employed or the supply side. Of course, all sales have to be made under safe payment terms, which is probably the only limiting factor in increasing sales.

The Question I Have Is:

1. Should the salesperson get an annual increment every year on their fixed salary besides whatever annual bonus they may get based on their sales?
OR
2. Should they be expected to achieve growth in their salary through growth in their sales, thereby increasing their annual bonus?

I would appreciate frank views on this and can post a synopsis back to the group.

Regards,
Andy

Dear Friend,

Since you have a sales team, it is clear that the entire team is selected based on their market performance and past career achievements. I assume your organization has a fixed salary for each employee, along with a sales bonus and defined areas of operation. No salesperson should cross into another's territory, as this could create significant issues by affecting performance through territorial intrusion. As an organization, they report to the head of sales, who ensures integrity. When sales are thriving, there are no issues, but what happens if sales decline? Additionally, it is unclear from your wording if the salesperson has a common fixed salary without increments. Do they remain continuously employed? How many salespersons have served longer than the sales head? Have you ever evaluated the sales and progress? These are your issues.

To ensure the salesperson remains with us, we should consider enhancing their salary annually to support career growth. There is no flat structure, as you mentioned. They need to meet new customers and should be motivated for better performance; thus, their salary should be increased. Regarding sales bonuses, whenever they meet a new customer, their sales progress is projected, and their bonus increases. If they fail to meet a new customer, their bonus will not increase. The hidden fact is you are paying for old sales, treating old customers as new ones. Thus, the bonus is regularly paid to old customers, treating them as new, or every sale is regularly added for a bonus. Essentially, the team focuses on old customers.

In the absence of a clear policy, projections can lead to anomalies. Therefore, for better career opportunities and motivation for the sales team, considering salary enhancements is a good approach. The sales bonus is a separate matter and depends on both old and new customers.

Best of luck.