compensating sales force

8/2/2019 Compensating Sales Force

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Compensating the Sales Force


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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 workedOften adopted when salesperson must devote

significant 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 popularEmployed 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 dilemma hire 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 keep motivationup


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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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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 waysGlobally, firm may pay salespersons expenses

to live overseas that include familyExpatriate expenses are significant

Expense plans includeUnlimited

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 not availableto make sale

Sales force must be given guidance and expensesmust still be monitored to insure sound judgment Reimbursed expenses vary by country e.g.

entertainment and alcohol


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Per Diem Expense Plan

The salesperson is given a set amount of

money for each day s/he is in the field

For example, US$250 per day Budget can be set by multiplying rate times total days

sales force expected to travel

Single rate unlikely to work in all locales due to

varying costs

Sales manager must adjust per diem rates regularly as

prices expand or contract


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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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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 thatSales Expenses = Profits

Rules for sales force compensation, contests, andexpenses must be simple and unambiguous!

compensating sales force

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