Realigning Fixed and Variable Pay in Sales Organization : Compensation Management

A firm's ability to weather business cycles stems from effective utilization of an appropriate level of leverage though realigning fixed and variable costs. These accrued cost savings are redirected to keep the organization afloat until business conditions turn around. Reducing employee costs avoids the situation of large-scale retrenchment by the organization. Low operating leverage results in low variability of profit during periods of lower sales such as recession. With low operating leverage, any unforeseen negative variation in sales revenue will result into lower downward variation in profitability. Realigning cost in terms of appropriate balance of fixed and variable pay reduces operating leverage and hence mitigates negative impact of business cycle stages such as recession on the organizations