Understanding Sales Compensation Assignment The goal of this assignment is to help you understand the varied ways that salespeople are paid. Below is an overview, followed by a specific example of a real-world pay structure for a 1 st year salesperson. The pay structure is based on Mutual of Omaha's business to consumer (B2C) pay-and is nearly a direct copy. You will answer some questions about what your pay would be if you worked under this pay structure to help you understand both the complexity of pay for performance models. Commission: many companies pay on "commission." This means if you sell something to a customer for $100, you earn a percentage of that $100. For example, if you sold a $1200 annual premium life insurance policy, based on the "commission rate" below, you would earn $600 at the time of sale. After the first year, if the customer renews the policy (continues to pay the premiums) you continue to get "residual" commission payments. These are lower than the initial 50% rate, but they reward salespeople who do a good job of understanding customers and getting them the right product such that the customers keep the policy for many years. The point of commissions is to motivate salespeople to do their best. The more you do and better you are at your role, the more you make. There is no limit to the commission you can earn at many companies, including in this example. Life Insurance: 50% Long Term Care: 50% Disability: 50% Critical Illness: 50% Medicare Supp: 18% Annuities 2-4% Training Pay: many companies have incentive pay for training early in a sales career. Firms do this to help ensure you are a good salesperson who understands the products/services being sold, the customers' needs, and that you follow the companies' rules for ethical behavior. For example, for this company, for each "IS&M Training Phase" you complete during your Is year of employment, you are given the coordinating "Payment Amount." If you complete all of the trainings below, you would have earned $6,000 for training Activity Payment Amount Signing Bonus L&H passed, contracted and U4 approved $500 $65 Exam Passed and MOIS Registration $2,000 Pre-Launch Prerequisites, Prospecting, etc. $1,000 Advisor Launch Successfully complete class, 20+ Appts. Set $1,000 CSD Career Start Date $1,500Fixed, Base, or Salary Pay: In addition to training pay and commissions, there are often payments you receive as a salesperson that are directly tied to performing your job, but they are "capped" or "limited." You can think of this pay as a form of monthly salary. Most companies offer a limited salary as long as you perform certain tasks (think of this as the same as showing up for work at a non-sales role). In the example below, there are 2 forms of "fixed" payments. They are the Advisor Allowance and the Fixed Payments. You can receive each of these monthly if you perform what is outlined in the Requirements columns. For example, if during each of the 1 st, 2nd and 3"d months (Plan Months 1-3), you complete 3 customer applications (Apps) for policies AND the total yearly value of these applications is at least $4,750, you will earn $4,000 ($1,000 advisor allowance + $3,000 fixed payment). Note that the Quarterly Requirement is rolling-that is if you sold $14,000 of annual policy premiums the first month, you would meet the Quarterly Requirement for the entire year. Bonus Pay: Bonuses are another way salespeople are incentivized or motivated. Bonus pay is typically awarded at the end of the month, quarter, or year. Often bonus pay is set-up with levels, so you can earn a little, some, or a lot of bonus pay. In this example, bonus pay is a percentage of total sales revenues (value of what you sold) during the preceding 3 months (quarter). Looking at the Quarterly Bonus column, the value of any policy sold OVER the Quarterly Requirement will be rewarded with a 30% bonus. That means if during the first quarter of the year (months 1-3), you complete at least 2 policy applications valued at an annual total of $5,000, you would get a 30% bonus on $250 ($5,000 - $4,750), or $75. Required Activities Quarterly Plan Months FUW LADL App Advisor Requirements Allowance Fixed Payments' Requirement Quarterly Bonus FUW LADL NEYCI 4,750 or Bronze 1-3 2 Apps/Mo + NFYC Up to $1,000 $3,000 Starters Award NFYC greater Qualifier than the quarterly 4-6 2 Apps/Mo + NFYC Up to $1,000 $3,000 6,500 requirement will get an additional 30% 7-9 2 Apps/Mo + NFYC Up to $1,000 $3,000 6,750 commission rate 10-12 2 Apps/Mo + NFYC Up to $1,000 $3,000 7,000 Advisor Allowance: This amount is often referred to as a "wellness allowance" and is a payment made based on productivity. Determining the monthly "allowance" is 2-step. Step 1 is submitting at least 2 applications; step 2 is checking the total value (NFYC) of the policies. See the table below and note that the required NFYC changes beginning in the 4th month of employment and then remains constant. Plan Month 1-3 Plan Month 4-36 FUW NBSD Submitted Issued FUW NBSD Wellness Allowance FUW NBSD Submitted Issued FUW NBSD Wellness Allowance Apps NFYC Apps NFYC