sales force compensation.ppt
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Chapter 11
Compensating the Sales Force
Sales Management: A Global Perspective
Earl D. Honeycutt
John B. Ford
Antonis C. Simintiras
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Introduction
Compensation in the global market is an
extremely important managerial area
This is because the compensation plan:
Helps attract potential salespersons
Impacts a salespersons motivation
Is a determinant of status and value
Determines lifestyle and purchasing power
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In Global Market
Compensation package is complex and
affected by multiple forces:
A balance between company policies andcountry-specific elements
Total compensation package includes financial
Salary, commission, bonus, stock options, benefits and non-financial incentives
Awards, recognition, vacation, and promotion
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Compensation Plans
Hard to compare compensation plans
because of their differences
Lower salary, but higher deferred componentsCannot simply transfer a compensation plan
from one culture to another
What works in one culture will not work in another!
Compensation should motivate sales force to
accomplish goals set by management
Compensation may be changed to meet firm goals
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Three Types of Compensation
Plans
Straight Salary Straight Commission
Combination Plan
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Straight Salary
Salesperson paid a set amount of moneybased upon hours or days worked
Often adopted when salesperson must devotesignificant amounts of time to other duties
Market research, customer service, administration
Simple to administer by sales manager
But, no direct link between performance andreward! More commonly used in Europe and may be
difficult to change by global sales managers
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Straight Commission
Adopted by performance-oriented firms that pay
salesperson for their achievements
Each person is paid a percentage of their total sales Easy to evaluate performance
Plans encompass an element of insecurity
Not believed acceptable in some cultures, like EU
Some evidence of acceptance in Japan
Can lead salesperson to shirk duties or pressure customers to
buy
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Combination Pay Plan
The combination plan is the most popular
Employed by more than 80% of US firms
May appear in many forms: Salary, commission, individual and group bonuses
Basic security bestowed by set salary
Motivation introduced by commission/bonus
Combination plans more time consumingfor sales managers to oversee
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Ethical Compensation Issues
Major dilemmahire the best salesperson for the
lowest possible salary. Other dilemmas include:
Pay at, below or above market salaries?Setting a cap on total pay?
Assigning lucrative sales territories?
Team vs. individual incentives?Frequency of paying commission?
Pay discrimination?
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Discussion Questions
What are the advantages of each pay plan?
The disadvantages?
Which pay plan would work best for a
software firm that is a market leader?
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Sales Contests
Sales contests are short-term incentive programsimplemented to motivate salespersons to achievespecific goals or activities
For sales contests to be successful: Objectives must be specific and clearly defined
Contest theme must be exciting and clearlycommunicated
Each salespersons must believe they can win
Awards must be attractive to participants
Contest must be promoted and managed properly
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Sales Contest Elements Contest Objectives
To increase total and product sales most common
Sales force must be given sufficient time
All contest information and rules must be clear
Theme
Contests receive a theme to create excitement
Chance of winning Compete against self, others, or as a team? In U.S. salesperson has about a 40% chance of winning
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Types of Rewards
Sales contests can offer many types of reward inthe form of: Cash, prizes, or travel
Perceived value very important as it must be ofsufficient value to motivate additional effort
Promotion of contest important Launched as a special event with handouts
Large scorecards to communicate progress
Newsletter articles or interim prizes can keepmotivation up
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Sales Contest Concerns
A number of concerns have been raisedabout sales contests
When not properly designed contests take a lotof managerial time to administer
Improper contests can actually de-motivate
Do sales contests generate additional sales?
Should sales force be paid twice for doing job?
If contests are for short-term, then why have anever-ending sales contest?
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Discussion Questions
How might a sales contest motivate sales
personnel to greater efforts?
Does a sales contest take into considerationthe needs of the buyer?
Is it possible sales contests have become a
part of the compensation system? If so,what does this tell us?
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Non-Financial Incentives
Human needs require approaches other than
compensation to remain satisfied
Ability to grow
Recognition programs
Salesperson of the year, Presidents Club
Opportunity to travelEducational assistance
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Sales Expense Plans
Linked to salary in some ways
Globally, firm may pay salespersons expenses
to live overseas that include familyExpatriate expenses are significant
Expense plans include
Unlimited
Per diem
Limited expense plan
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Unlimited Expense Plan
All legitimate expenses are reimbursed
Plan has a number of advantages
Communicates trust to the sales force Sales manager can focus on more important issues
Salesperson cannot complain that resources notavailable to make sale
Sales force must be given guidance and expensesmust still be monitored to insure sound judgment Reimbursed expenses vary by countrye.g.
entertainment and alcohol
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Limited Expense Plan
The firm sets a maximum daily amount paidfor each category of expense
That is, US$125 for lodging, $50 for meals, $30for auto rental, and $20 for miscellaneous
Limits firms upper travel expense limit
Must be updated and will vary by location
When actual costs exceed plan, salesperson may tryto save in some areas to meet expenses in other
Salespersons attention may be diverted from client
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Discussion Questions
Is there a connection between the ethical
practices of sales managers, regarding pay
matters, and the ethical behavior ofsalespersons?
What is the purpose of expense plans?
Compare and contrast the advantages anddisadvantages of the three expense plans
covered in this chapter
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Chapter Summary
Compensation plan helps attract and maintainquality sales force Compensation is culturally influenced
Sales contests can provide short term motivation Must be properly planned and managed
Expense plans important
Cover legitimate expenses, but always remember thatSalesExpenses = Profits
Rules for sales force compensation, contests, andexpenses must be simple and unambiguous!
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