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Current problems facing distributor compensation systems:

  1. Lack of standardized systems. Many distributor companies employ family members and believe there is no need to establish a compensation system; rough payment is sufficient, let alone having written compensation policies or documents.
  2. Compensation design lags behind development. That is, the compensation system of distributor companies cannot keep up with market development requirements. For example, for mature products and markets, they still adopt a commission system, lacking guidance and assessment of the sales process.
  3. Compensation is mainly paid in cash, with a single form. This manifests as paying wages or bonuses in cash, but pure monetary incentives are far from sufficient for cultivating and enhancing employee loyalty and cohesion.
  4. Compensation design lacks reference. Basically, it is done behind closed doors, lacking internal or external research and understanding, lacking analysis of employee needs, and without referencing or surveying peer or competitor compensation systems, being in a state of "a blind man riding a blind horse."

How can distributors effectively design compensation systems? The author believes that a compensation system should include two aspects: compensation composition and payment form. Let's discuss them separately:

Compensation composition: Common compensation compositions include the following:

  1. Fixed salary system. This is the most commonly adopted by distributors. Because many distributor companies are small in scale and lack professional compensation designers, they adopt this more convenient compensation method. However, its biggest drawback is that, similar to the "iron rice bowl" (egalitarian distribution), it is difficult to mobilize everyone's enthusiasm, many people just go through the motions, and everyone lacks a sense of responsibility.
  2. Commission system. That is, a certain percentage or amount of commission is given based on sales amount or volume. Some distributors adopt a no-base-salary, high-commission approach, while others adopt base salary plus commission. The advantage of this compensation system is that it rewards based on performance, better stimulating everyone's enthusiasm. However, its drawback is that it allows some old employees to reap without sowing, and it may prompt a few speculators to resort to inventory pressure, channel stuffing, or cross-region selling to get more commission, thereby bringing hidden dangers to the market.
  3. Bonus system. That is, salary + bonus. Usually, only the salary part is paid, and at the end of the year, based on company performance, additional bonuses are given through red envelopes or dividends to encourage everyone's momentum for the coming year. Its advantage is that it gives everyone a vision or expectation, but the drawback is that the bonus standard is uncertain; if bonuses are too small, it affects morale, and if too large, many bosses are unwilling.
  4. Performance system. Its composition: basic salary + performance salary + immediate incentives. This is a more comprehensive compensation form that many standardized distributor companies ultimately adopt. The biggest characteristic of this system is that it links employee work with company performance, emphasizes efficiency and results, and is also process-oriented, so it is favored by many large-scale distributors.

Payment forms: In addition to regular wages, subsidies, travel expenses, and welfare items, it also includes social insurance (three insurances), housing, shares, stock options, or dividends.

So, what kind of compensation system should distributors adopt? The author believes that this needs to be combined with the distributor's own development stage; different periods require different compensation systems to adapt and match.

Initial stage. That is, when one has just become a distributor, everything starts from scratch. This stage may last one to two years, or three to five years, depending on the distributor's sales scope, region, or the cycle of the agency product entering the market. The biggest challenge at this stage is to quickly build a network and achieve maximum product distribution. How can distributors mobilize everyone's internal drive to better accomplish this task? The most effective way is to adopt the "low base salary + high commission" approach. A low base salary complies with the national minimum wage policy and can prevent those who feel that getting a base salary is good enough and lack ambition, while high commission will inspire everyone to forget meals and sleep, trying every means to sell goods. A boss who transitioned from a factory salesperson to a washing and chemical distributor, when initially expanding the market, after calculation and estimation, adopted a high commission approach. The compensation scope included not only marketing personnel but also drivers, thereby maximizing the mobilization of everyone's internal drive, changing "have to do" to "want to do." They voluntarily went out early and returned late, achieving good incentive results.

Growth stage. Distributors who have been established for three to five years and have not been eliminated enter the growth stage. At this stage, the author believes that the form of basic salary + commission + assessment should be adopted. Compared to the initial stage, the basic salary can be appropriately increased to stabilize the workforce and increase employees' sense of belonging and cohesion to the company. Commission, except for new products or high-profit products, should be maintained at an appropriate proportion but lower than the initial stage level. Because at this time, sales volume has already increased, even if the commission rate is reduced, relying on the rapidly growing sales volume can still make some people rich first. Why add an assessment? The purpose is to guide everyone's sales behavior through assessment and avoid short-sightedness. We can assess new product promotion, product structure, outlet coverage, price system, etc., ultimately achieving a combination of volume and profit, healthy development, and preventing volume without profit and excessive depletion of market resources.

Maturity stage. When the operating time exceeds a certain number of years, such as eight or ten years, and market indicators are relatively stable, the distributor can be said to have entered the maturity stage. The operational focus at this stage is to maintain a steady growth state, shifting from simply chasing sales volume and scale to profit and efficiency. At this time, a performance assessment system can be adopted, namely basic salary + performance salary + immediate incentives. Basic salary can assess employees' work attitude, attendance, and completion of work forms, etc. Performance salary generally assesses sales target achievement rate (usually accounting for more than 60%), outlet coverage rate, terminal visit frequency, price system, market management, subordinate training, customer satisfaction, etc. Immediate incentives are mainly based on market tasks at different stages, such as new product promotion, new outlet development, personnel training, image store construction, etc., using positive and negative incentives, rewarding good and punishing bad, playing a baton role, generally reflected in the current month. The most typical benefit of the performance salary system is result-oriented, process management, and pursuit of long-term goals. It can not only comprehensively consider corporate benefits but also effectively balance employee income, avoiding some being overpaid and others underpaid.

In addition, when designing the compensation system, in the initial stage, besides wages, employees should also be provided with welfare benefits such as social insurance (three insurances) and insurance. This not only makes the company a law-abiding corporate citizen but also helps retain people and avoid abnormal turnover. In the growth and maturity stages, distributors need to consider building an excellent team, especially for middle and senior management. At this time, besides wages and benefits, such as increasing seniority pay, they can also consider corporatization of shares, allowing employees to buy shares, allocating shares to excellent employees, and year-end dividends or rewarding stock options, etc., to mobilize everyone's subjective initiative in all aspects, give play to everyone's sense of ownership, and thus pool collective wisdom to strengthen and expand the enterprise.

In summary, when distributors encounter development bottlenecks, they should first check their own compensation system. Running a business is about managing people's hearts. Besides objective factors like timing and location, harmony among people is actually more critical. Only by clearly understanding different compensation methods and their advantages and disadvantages, and flexibly adjusting them according to their own situation, timely and appropriately, keeping up with industry and market trends, can distributor bosses better play the guiding role of compensation assessment, thereby working together to seize more favorable market high ground and embark on a healthy and stable development path.