Chapter 11 Compensating the Sales Force

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Chapter 11Compensating 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 and
  country-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 components
• Cannot 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 money based upon
  hours or days worked
• Often 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 and
  reward!
• 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 consuming for 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 programs
  implemented to motivate salespersons to achieve
  specific goals or activities
• For sales contests to be successful
• Objectives must be specific and clearly defined
• Contest theme must be exciting and clearly
  communicated
• 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 in
  the form of
• Cash, prizes, or travel
• Perceived value very important as it must be of
  sufficient 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
  motivation up

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Sales Contest Concerns

• A number of concerns have been raised about sales
  contests
• When not properly designed contests take a lot of
  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 a
  never-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 consideration the
  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 travel
• Educational 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 family
• Expatriate 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 not
  available to make sale
• Sales force must be given guidance and expenses
  must 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, US250 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 paid for
  each category of expense
• That is, US125 for lodging, 50 for meals, 30
  for 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
  try to 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 of
  salespersons?
• What is the purpose of expense plans? Compare
  and contrast the advantages and disadvantages of
  the three expense plans covered in this chapter

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Chapter Summary

• Compensation plan helps attract and maintain
  quality 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
  that Sales Expenses Profits
• Rules for sales force compensation, contests, and
  expenses must be simple and unambiguous!