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TAANZ - Travel Agents Association New Zealand link to website

T. 09 524 6178      F. 09 524 6179     E. contactus@taaccounting.co.nz

Should Your Travel Business Use Performance Based Pay?  JUNE 2015

Let’s have a look at the arguments for Performance Based Pay

THE ECONOMIC ARGUMENT

Sales Person’s income moves in sync with Travel Business income.

In uncertain economic times you want to have your Sales Persons on more variable earnings.

If Travel Business income drops – staff salaries need to drop.

In good times where Income is certain – you want to have Sales Persons on fixed earnings.

THE MARKET PLACE ARGUMENT

The market place is as follows:

  • Good Sales Persons are hard to find.
  • There are vacancies – but not many.
  • Sales Persons who leave the industry seldom return as they get well paid on certain salaries in other customer service jobs.
  • There is a shortage of Retail Sales Persons and Short Haul Sales Persons.

Hold on to the staff you have.

Reward then as best you can – travel rewards must be attractive.

If staff are good they have a relationship with your clients and could move with your clients elsewhere.

REMUNERATION SCHEMES AND YOUR CULTURE

Consider the Culture of your Business:

Competitive – Individual Targets and Bonus’s

Cooperative – Office Targets and Bonus’s

Consider Non Cash Incentives

Travel / Educationals / taken in quiet months

Consider the likelihood of staff leaving

Consider the state of your business

Reach a compromise between what is financially best for you and rewarding for your employees.

Bonuses and Targets should always be set on commissions / income earned by your Business.

You may wish to include Credit Card fees and recoveries in the income?

PERFORMANCE BASED REMUNERATION

The key to any remuneration system is to ensure that total payroll costs do not exceed between 40-45% of total sales person income  earned.

The key to a successful remuneration system is that it must be both affordable for the business and motivational for the salespeople.

This Performance Based Remuneration system has three integral parts:

Base Salary (paid weekly or fortnightly)

  • Junior Sales Person up to $30k
  • Intermediate Sales Person up to $40k
  • Senior Sales Person up to $50k

Set an Annual Target for your staff member at 2.5 x their Annual Salary

Spread this according to your expected Monthly / Quarterly % of Earnings
This becomes the staff members Monthly and Quarterly Target

Measure the Actual vs. Target for each Quarter – if they exceed the target for the Quarter pay then a bonus of 45% of the excess over target.

Annual Bonus (paid annually)

Bonus level – paid at 50% of Actual Commissions less Quarterly Bonus’s paid.

The grid below illustrates what a Sales Person can earn if certain targets are achieved:

Junior Sales Persons

Base salary $20k Target $50k Actual $70k Bonus $10k  Cost 43%

Base salary $25k Target $62.5k Actual $70k Bonus $4218.75 Cost 42%

Intermediate Sales Persons

Base salary $30k Target $75k Actual $90k Bonus $7.5k  Cost 42%

Base salary $35k Target $87.5k Actual $90k Bonus $1,856  Cost 41%

Senior Sales Persons

Base salary $35k           Target $87.5k             Actual $110k             Bonus $11,250            Cost 42%

Base salary $40k           Target $100k             Actual $110k             Bonus $5000              Cost 41%

Base salary $35k           Target $87.5k             Actual $80k              Bonus $168                 Cost 44%

Base salary $40k           Target $100k             Actual $80k              Bonus $0                     Cost 50%

If the Base is set lower you are at less risk of overpaying anyone if they under achieve!!!!

If the Base is set lower you are rewarding Sales Persons who achieve higher than target!!!

ANOTHER OPTION
Set a Target
Pay Commission over the Target

Advantages: Simple to operate

Disadvantages: Doesn’t reward the consultant on a regular basis

Pay Commission on every sale

Advantages: Simple to operate

Disadvantages: May reward poor performance