Post on 29-Dec-2015
CHAPTER 14
COMPENSATING SALESPEOPLE
THE SALES FORCE REWARD SYSTEM
Financial compensation Non-financial compensation
IMPORTANCE OF SALES FORCE REWARDS
Sales force Company Customer relations and goodwill Strategic planning
DESIGN CONSIDERATIONS
Inherent conflicts No plan fits all situations Internal equity External equity
COMPENSATION PLAN OBJECTIVES
Correlate efforts, results, and rewards
Control activities Ensure proper treatment of
customers Attract and keep good salespeople
BASIC REQUIREMENTS
Provision for two types of income Flexibility and stability Simplicity Economy and competitiveness Fairness
STEPS IN DESIGNING A PLAN
1. Review job analysis/description
2. Determine objectives
3. Determine job elements
4. Establish level of compensation
5. Pretest
6. Administer/Evaluate
REVIEW JOB DESCRIPTION
Review nature, scope, and difficulty of job
SET OBJECTIVES
Increase volume Obtain new accounts Minimize expenses
ESTABLISH JOB ELEMENTS
Controllable Measurable
LEVEL OF COMPENSATION
Type of plan Size of company Age of salespeople Industry
COMPENSATION ISSUE
Should sales managers always be paid more than the people they manage?
PRETEST
Start with one or two sales divisions
ADMINISTER/EVALUATE
Implement Review and modify where necessary
METHODS OF COMPENSATION
Straight salary Straight commission Combination Team Selling Optimum Pay Plans
STRAIGHT SALARY PLANS
Salary is a fixed element Degree of security Lower turnover “Full” approach to selling No direct incentive
WHEN TO USE
While in a training mode Entering a new territory/new product
market Tremendous time to sell to one
account Missionary sales positions Joint selling
STRAIGHT COMMISSION PLANS
Based on a unit of accomplishment Base, rate and starting point Advances (drawing account) Provides incentive Weeds out poor performers Supervision problems Split commissions
WHEN TO USE
Company is weak financially Great incentive required Little non-selling work required Supervision not possible Long term relationships not important Part-time sales people/manufacturer’s
agents
RATE SCHEDULES
Progressive rate schedule– 5% on first $20,000– 7% on next $80,000– 10% on amount over $100,000
Regressive rate schedule
COMBINATION PLAN
Most popular plan Overcomes some of the weaknesses
of straight salary and straight commission plans
TEAM SELLING
More common today Difficult to provide rewards Shared commissions/group bonuses
OPTIMUM PAY PLANS
Commission based on gross margin Forces individuals to focus on items
which maximize profits for the company
OTHER COMPENSATION ISSUES
Bonuses Drawing Accounts Expense Accounts
BONUSES
Payment for above normal performance
No obligation to provide regularly
DRAWING ACCOUNT
Cash advance called a “draw”
DRAWING ACCOUNT
MTH DRAW SALES COMM EOMPYMT
Jan $1,800 $40,000 $4,000 $2,220
Feb $1,800 $15,000 $1,500 0 (owes$300)
Mar $1,800 $30,000 $3,000 $900
(10% commission rate)
EXPENSE ACCOUNTS
Reimbursement for travel and other sales related costs
A troublesome task for the sales manager!
EXPENSE BREAKDOWN
Meals 16%
Air Travel 26%
Automobile 24%
Lodging 18%
Entertainment 13%
Other 3%
CHARACTERISTICS OF A GOOD EXPENSE PLAN
No net gain/loss Equitable treatment No curtailment of beneficial activities Simple and economical Avoidance of disputes Company control/elimination of
padding
CONTROLLING EXPENSES
Type of plan– salary versus commission– unlimited versus per diem
Automobiles Training Travel planning
FROM THE TEXT
Read everything in Chapter 14!!