Fit Shop Sales Staff Compensation Strategy: A Case Study Analysis

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CASE STUDY OF FIT SHOP
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Table of Contents
1. IMPORTANCE OF BASE PAY ELEMENT OF COMPENSATION MIX TO THE SALES STAFF..........3
2. PERFORMANCE PAY PLAN FOR THE FIT SHOP........................................................................4
3. TO FORMULATE THE 5 STEP COMPENSATION STRATEGY AT FIT SHOP..................................5
4. BENEFITS OF INDIRECT PAY TO THE FIT SHOP........................................................................9
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1. IMPORTANCE OF BASE PAY ELEMENT OF COMPENSATION MIX TO
THE SALES STAFF
In the given case study, Susan Superfit is starting a new business named “Fit shop” that deals
with the health and fitness equipment and for that, she has to acquire the salespeople who
would directly deal with the customers. Susan finds difficulty in paying the sales staff so in this
segment, the recommendations for the same will be provided.
First of all, Susan should start with the base pay to compensate the sales staff. Base pay is the
basic salary paid to the employees on the basis of their work or performance which can be
either on hourly basis or performance basis. Base pay is the guaranteed compensation paid to
the employee by the employer. When base pay is paid on an hourly basis it is known as wages.
When paid on periodically or annually basis it is known salary.
 With the help of base pay, Susan will be able to encourage the job performance of the
sales staff and would also be able to enhance the skills of the employees.
 Susan can compensate the sales staff with a base pay of about 75% to 80% and the
remaining 20% to 25% can be paid on the basis of the performance i.e. it can be in the
form of incentives.
 If the basic pay is done on an hourly basis then the criteria should be $15 per hour. If the
basic pay is on the basis of periodically or annual basis, the criteria should be $300 per
day, $1500 per week, and $6,000 per month.
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 Apart from all this, the employer of the firm i.e. Susan should conduct the job analysis through
which how much responsibility a salesperson is bearing will be evaluated and on the basis of
that, the base pay is to be recommended.
2. PERFORMANCE PAY PLAN FOR THE FIT SHOP
At Fit Shop, organizational performance pay given to the employees will not only improve the
efficiency of the company but will also motivate the employees and will ensure that the skills
and abilities are optimally utilized. Different types of performance pay plans can be used in the
firm such as individual performance pay plans that include piece rates, merit pay, commissions,
incentives and group performance pay plans such as profit sharing plans, and goal sharing
plans, employee stock plans and other organizational pay plans.
The two key elements that are required to be considered for paying organization pay at Fit
Shop are:
 Profit-sharing plans: it is the plan in which the Fit Shop is required to provide the bonus
to employees depends on the profitability at the end of the year. It includes two types
of distribution plans; current distribution profit sharing plan and deferred profit-sharing
plan.
 Employee-stock plan: in this plan, the employees of Fit Shop are able to acquire the
shares of the firm. There are generally three types of stock plans: employee stock bonus
plans, employee stock option plans as well as employee share purchase plans.
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3. TO FORMULATE THE 5 STEP COMPENSATION STRATEGY AT FIT
SHOP
To formulate the compensation strategy at Fit Shop, Susan has to follow the following process
for the success of the firm’s objective.
The sales compensation system can be designed with the help of task force, which will include
Susan (CEO), the VPs and managers of Sales and Human Resources, sales engineers and other
salespeople who directly serve the customer. These are the total employees of the firm who are
eligible for the compensation and for that the compensation strategy template is given below:
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Identify the role based on the reward and compensation
system
To determine the compensation mix elements
To determine the level of compensation
Evaluating the defined strategy
Define the behaviour of the employees

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COMPENSATION STRATEGY TEMPLATE
JOB FAMILY: Sales Engineer________________________________
TOTAL COMPENSATION LEVEL: MATCH? LEAD? 20% LAG? ________
Proportion of Total Pay
1. Base Pay 50%
a. Job evaluation -
b. Market pricing 50%
c. Pay for knowledge -
2. Performance Pay 30%
a. Individual performance pay
i. Piece rate -
ii. Commissions 10%
iii. Merit bonuses -
iv. Special incentives -
b. Group performance pay
i. Gain sharing
ii. Goal sharing
iii. Other group pay Group Commissions 10%
c. Organization performance pay
i. Profit sharing 5%
ii. Stock plan 5%
iii. Other organization pay -
3. Indirect Pay 20%
a. Mandatory benefits 8%

With the help of the above-given template, it would become easy for the employer of Fit Shop
to classify the pay of the employees and sales staff.
Elements of Compensation Mix
Base pay: Base pay will define the job behaviours of the salespeople at the workplace and will
support the managerial strategy.
Performance Pay: It will motivate the employees of Fit Shop and will enhance their job
performance.
Indirect pay: Indirect pay helps the firm to take the benefit of tax liability and provides rewards
to the employees and will also promote the products of the company.
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1. BENEFITS OF INDIRECT PAY TO THE FIT SHOP
Indirect pay is generally not part of performance pay or base pay. It is the costs of the employer
that is given as the benefit to the employees in terms of health coverage, long term protection
of income and other benefits.
Following are the reasons for adopting the indirect pay system at Fit Shop:
 Competitive Pressure: To increase the sales of the firm and sustain in the competitive market,
Fit Shop has to acquire more sales staff and for that to retain the staff the employer has to
provide benefits other than monetary terms.
 Favourable treatment in Income Tax: in Income tax, there are various benefits for indirect pay
so Fit Shop can focus on providing after-tax compensation to employees.
 Group Discounts: As the employer purchases the insurance plans for the group of employees,
Fit shop will be able to get such plans at the discounted price. This will also benefit the
employees of the firm.
 Managerial Strategy: The primary objective of the Fit Shop is to sustain in the market by selling
the higher number of equipment with best services. Indirect pay is the solution for the same as
sales staff will be satisfied with the rewards and they will enhance the sales of the company.
Thus all the above-given recommendations will help the Fit Shop to identify the abilities of
the sales staff who are the core employees for the new firm and the required base pay to be
provided along with performance pay, organization pay and indirect pay to enhance the
firm’s productivity in the market.
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