Post on 13-Jan-2016
description
8 Compensation
How Little you know about the
age you live in if you fancy that
honey is sweeter than cash in
hand.
What a Good Sales Compensation
Plan Should Do
Efforts +
Results =
Reward
Control
activities of
sales reps
Treat
customers
properly
Attract and
keep good
people
Motivate the
salespersonGood sales
compensation
plan
Economical yet
competitive
Fair SimpleFlexible and
stable
Security and
incentive
2
Designing the Sales Compensation Plan
Pre-test and Install Plan
Decide on Indirect Monetary Compensation
Develop the Method of Compensation
Establish Level of Compensation
Identify Plan’s Objectives
Review Job Description
3
Identify Specific Objectives
Increase
Profits
Sales volume of a specific class
Increase volume of existing accounts
Improve customer satisfaction
Stimulate missionary work
Develop a new territory
Should be based on factors:
Controllable by sales person
Measurable by Company
4
Establishing the Level of Compensation
Average amount earned over a given period
How much should precede the how
Clarify the three components to the sales staff:
Fixed
Variable
Deferred
Highest in financial services with greater emphasis
on performance linked
Lowest in retail with greater emphasis on fixed
element
5
Compensating Salespeople
Components Needs
SALARY
Motivate effort on non-selling activities
Adjust for differences in territory potential
Reward experience and competence
COMMISSIONS Motivate a high level of selling effort
Encourage sales success
INCENTIVE
PAYMENTS
Direct effort toward strategic objectives
Provide additional rewards for top performers
Encourage sales success
SALES
CONTESTS
Stimulate additional effort targeted at specific
short-term objectives
PERSONAL
BENEFITS
Satisfy salespeople’s security needs
Match competitive offers
6
Building Blocks – Sales Compensation Plan
7
SECURITY
Salary
INCENTIVES
Profit Sharing
Bonus
Commission
BENEFITS
Medical
Pension
Leaves
Insurance
Paid Vacation
EXPENSES
Travel
Lodging
Company Car
Entertainment
Others
Others
Stock Options
Cost of Living
Allowance
Compensation Methods for Salespeople
Compensation
Method
Especially
Useful ForAdvantages Disadvantages
Straight
Salary
• New sales
reps
• New sales
territories
• Many
required
non-selling
activities
• Maximum security
• Control over reps
• Easy to administer
• Predictable expenses
• Positive impact on
consumers
• Good when difficult to
determine who made
the sale
• Suits times of drastic
business swings
• No incentive
• Requires close
supervision
• Favours
unproductive
sales people
• Selling
expenses
remain same
during sales
declines
8
Compensation Methods for Salespeople
Compensation
Method
Especially
Useful ForAdvantages Disadvantages
Straight
Commission
• Highly
aggressive
selling
• Minimal
required non-
selling tasks
• When company
can’t closely
control sales
force
• Motivational
• Managers can
encourage
sales of certain
items
• Relates
directly to
performance
• Perceived fair
• Little security
• Little control
over reps
• Reps may
provide
inadequate
service to
smaller
accounts
• Selling costs
less predictable
9
Straight Commission Plans
Base – for measurement of performance – units
or revenue
Rate – Amount paid for each unit based onLevel of desired income for sales team
Profitability of different products
Difficulty in selling a product
Class of customer
Rates may be Constant
Progressive
Regressive
Split commissions for geographical location
situations 10
Compensation Methods for Salespeople
Compensation
Method
Especially Useful
ForAdvantages Disadvantages
Sales plus
Commission
• Similar sales
potential across
territories
• When company
wants to offer
incentive but
maintain some
control
• Some security
• Some incentive
• Selling
expenses vary
with revenue
• Manager has
some control
over non-
selling
activities
• Selling
expenses are
less predictable
• May be difficult
to administer
11
BonusDiscretionary payments for reaching specified goals.
The goals are normally volume or profit quotas
Normally announced in advance and paid annually
Not to be confused with Bonus laws in India
Compensation
Method
Especially
Useful ForAdvantages Disadvantages
Salary plus
Bonus
• FMCG
products
where
advertising
has pre-sold
most of the
items
• Balance
expense
control and
reward system
• Lower turnover
amongst reps
• Size of the bonus
tends to be arbitrary
• Rationale behind
bonus plans
normally not clarified
to reps
• Reps tend to take it
slightly easy in the
first quarter
12
Compensation Methods for Salespeople
Compensation
Method
Especially Useful
ForAdvantages Disadvantages
Sales plus
Commission
Plus Bonus
• Office
equipment and
business
services
• Rewards every
activity
performed by
sales person
• Flexibility to
balance team
work, customer
satisfaction
• Too complex with
too many
variables
• More expensive to
administer
• Confusion among
sales persons
resulting in
concentration on
less difficult
activities
13
Problem
You join a company as General Manager Sales
The company wants to be more customer driven and give better
service
You also feel that sales persons should go after new business
The commission structure is therefore changed from 100% on quota
to 50% on quota, 20% on new business generated and 30% on
service (to be measured through repeat business and surveys
At the end of three months sales start falling and morale is low.
Sales persons tell you that it is very difficult to meet quotas with
higher levels of service and prospecting
What would you do?
14
Impact of Sales Force Quotas
Quotas
Focus Manager Attention
Measure Accomplishment
Direct Sales Person efforts
Motivate Sales People
Provide Standards
for Evaluation
15
Types of Quotas
• Volume targets for each territory and each product for a specific period of time. May be in numbers or in revenue terms.
Sales Volume Quotas
• Look at contributions rather than volumesProfit Based
Quotas
• Number of calls made
• New accounts covered
• Product demonstrations
• POP displays
Activity Quotas
16
Sales Quotas
Can be made effective by:Providing timely feedback
Gaining goal commitment
Building self-confidence
Normally administered by:– Increase over sales last year
– Connecting to sales potential
What are the advantages and
disadvantages of both?
17
Design Questions for Combination Plans
What is the appropriate size of the incentive relative to the base salary?Should a ceiling be imposed on incentive earnings?When should the salesperson be credited with a sale?Should team incentives be used? If so, how should they be allocated among team members?How often should the salesperson receive incentive payments?
18
Customer Satisfaction and Sales Force
Compensation
Compensation plans lay emphasis on performance
possibly at the cost of customer satisfaction.
Sales persons also tend to manipulate data to show
better results.
Companies are now using customer satisfaction
surveys to calculate a reasonable part of the bonus.
Some sales persons feel that this brings in elements
such as product quality which are not in their control.
This element enhances relationship selling.
19
Sales Contests
Short-term incentive programs designed to motivate to accomplish specific sales objectivesContest winners receive:
Cash prizesMerchandiseTravel awardsSpecial honours or privileges
Successful contests require:Clearly defined, specific objectivesAn exciting themeReasonable probability of rewards for allAttractive rewardsPromotion and follow-through
Most contests run from one to three months
20
Criticisms of Sales Contests
May not produce lasting improvements
Salespeople may borrow sales from another period
to increase sales during the contest period
Poorly administered contests can hurt cohesiveness
and morale
Senior sales persons do not take contests seriously
Contests normally result in higher outstanding and
over stocking of dealers
Negative impact on losers
21
Sales Contests:
Recommended Guidelines
1. Minimize potential motivation and morale problems
by allowing multiple winners. Salespeople should
compete against individual goals and be declared
winners if those goals are met.
2. Recognize that contests will concentrate efforts in
specific areas, often at the temporary neglect of other
areas. Plan accordingly.
22
Sales Contests:
Recommended Guidelines
3. Consider the positive effects of including non-selling
personnel in sales contests.
4. Use variety as a basic element of sales contests.
Vary timing, duration, themes, and rewards.
5. Ensure that sales contest objectives are clear,
realistically attainable, and quantifiable to allow
performance assessment.
23
Indirect Monetary Compensation
Non financial compensation in form of honours,
recognition, or promotion
Indirect monetary benefits
Group insurance
Pension
Provident fund
ESOP
Profit sharing
Paid holidays
24
Our men give their
talent to the
company and their
genius to their
expense accounts.
Life
Sales Force Expenses
Expenses
Local Transportation
Office Expenses
Entertainment
Gifts
Travel, Lodging, Boarding
Communication
Meals
26
Sales Force Expenses
Travel(including boarding and lodging) and
conveyance expenses are normally more than the
salary plus commission
Should lay out clearly class of travel and the amount
to be spent on lodging/boarding
How often should it be reviewed?
27
Sales Force Expenses
• Local transportation:
•Fixed
•Per Km
•Advantages / Disadvantages
Characteristics of a Sound Expense Plan
•No net gain or loss
•Equitable treatment
•No curtailment of beneficial activities
•Simple and economical
•Avoidance of disputes
•Company control of expenses and elimination of padding
Methods of Controlling Expenses
Sales persons pay own expenses
Flexibility to decide level of expenses
Income tax advantage
Unlimited payment plan – No limits
Limited payment plan
Limit on individual items of expense
Flat sum over a period of time
Combination plan
Linked to quota or net sales
30
Other Methods of Expense Control
Training and enforcement
Credit cards
Expense bank account
Change in nature of entertainment
Telemarketing
Careful travel planning
Next Session
Evaluating
Performance and
Sales Force
Automation
32