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Chapter 11 Compensating the Sales Force

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Chapter 11 Compensating the Sales Force Sales Management: A Global Perspective Earl D. Honeycutt John B. Ford Antonis C. Simintiras Introduction Compensation in the ... – PowerPoint PPT presentation

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Title: Chapter 11 Compensating the Sales Force


1
Chapter 11Compensating the Sales Force
  • Sales Management A Global Perspective
  • Earl D. Honeycutt
  • John B. Ford
  • Antonis C. Simintiras

2
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

3
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

4
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

5
Three Types of Compensation Plans
  • Straight Salary
  • Straight Commission
  • Combination Plan

6
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

7
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

8
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

9
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?

10
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?

11
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

12
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

13
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

14
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?

15
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?

16
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

17
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

18
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

19
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

20
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

21
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

22
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!
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