Question

Consider the concept of budgeting, a widely practiced business process that plays an important role in both decision management and control over those decisions. Discuss the incentives of salespeople to forecast sales [which would be used for planning purposes - production, purchasing] for future periods accurately if they are to receive a fixed bonus if they exceed their forecasts.

Answer 1

Incentive of salespeople to forecast sales for future periods accurately if the are to receive a fixed bonus if they exceed their forecast are following :

1) salary plus commission - Salary plus commission sales compensation plans are possibly the most common plans used today. They’re structured in a way that sales people receive a lower base salary along with commission pay that makes up the majority of the total compensation. This incentive offer motivation to increase productivity and to achieve goal and help sale people to accurately forcast future period sales.

2) commission only- in this incentive you pay your sales people for the sales they bring in and nothing else. There is no guarantee of income. If they accurately forcast sales than a commission is paid and if they did not forecast the sales accurately than no commission is paid.

3) profit margin - These plans compensate sales people based on how well the company is performing. Profit margin plans are most often used by startups that have a lack of liquidity. It’s best to use the profit margin plan if you know that your sales people are able to support themselves through your lean periods, when you can also incorporate long-term incentives such as stock shares, and when you have other incentives andjob benefits to attract sales people, such as flex time. if salepeople accurately forecast the sales for future than a share of profit is given to salespeople.it is very common form and widely used incentive method.