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Compensation

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Compensation

Facts & FiguresPlanningMini-casesSummary

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Facts & Figures

Sales Costs as a % ofRevenue

Percentage

All companies 6.8%

Manufacturing 6.2%

Service 13.0%

Wholesale Distribution 6.9%

Retail 6.9%

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Facts & Figures

Sales Costs as a % ofRevenue

Percentage

Less than $4 million revenue 25.9%

$4 million-19.9 million 7.4%

$20 million -99.9 million 4.4%

$100 million + 1.8%

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Facts & Figures: Average Compensation

Base Total

Entry-level $23,290 $33,790

Mid-level $39,010 $56,080

Top-level $54,590 $90,390

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Facts & Figures: Average Compensation

AnnualCompensation

Straight Commission $74,000

Salary + incentive $55,000

Straight Salary $42,000

Sales Force Compensation Study by Dartnell Corporation, 1992

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Facts & Figures: Travel & Entertainment

Travel Entertainment

Overall $7,390 $5,940

Manufacturing $7,390 $5,940

Service $10,990 $6,590

WholesaleDistribution

$6,750 $5,780

Retail $5,630 $5,290

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Facts & Figures: Travel & Entertainment

Travel Entertainment

Less than $4 millionrevenue

$6,110 $5,630

$4 million-19.9million

$7,330 $5,550

$20 million-99.9million

$8,750 $6,470

$100 million + $9,740 $7,000

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Setting the Pay Level

Pay the prevailing rate?Pay a premium?Pay below the typical rate?

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Assess the firm’s marketing and sales objectives, and current performance of the sales force

Determine aspects of job performance to be rewarded (desired instrumentalities)

Assess personal characteristics of salespeople and their valences for alternative rewards

Determine most attractive and motivating mix of rewards

Decide on most appropriate level of total compensation

Decide on form and % of incentive-Commission,Bonus, Contest (short-term incentive awards)

Communicate the program to the sales force

Do analysis to determine the cost of program under various scenarios/ modify plan if necessary.

Steps in Designing Compensation Programs

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What’s on the Menu?

CommissionsBonusesContestsSalary

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Commissions

Straight Commissions: Examples: Door-to-door (Mary Kay,

Tupperware, etc) commissions of 25-50% of sales

Examples: Retail sale of automobiles & trucks commissions on gross margins

Examples: life insurance, real estate, stock brokerage, printing & wholesalers, 5-14% of sales

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Commission

When it’s commission + salary 39% of firms establish a commission

threshold progressive commission rates- higher

rate as sales go higher different commission rates on different

products

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Pay-out details

When?drawmonthlyover several months (cash flow)what about contract type business- anything

for just getting the contract?

On what?Net margin- need to train reps; credibilityGross margin- dittoSales- who controls pricing?

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Bonus

How to set these up? Performance measures: output or input? Pay-out for achievement of goals Set the goals:

for each individual (quota like)company level- matrix (a little less quota

like)

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Pay-out Matrix (example)

0-2.5% 2.5-5% 5-7.5% >7.5%

30% $850 $2000 $3500 $6000

25% $750 $1800 $3250 $5000

20% $650 $1600 $3050 $4000

15% $550 $1600 $2850 $3500

10% $450 $1600 $2750 $3500

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Contests

Contests: you want to encourage the “average” rep to expend extra effort since the top reps are doing that already lots of prizes (typically half of the sales people

eligible win some sort of prize) often have themes prizes are often theme related; or cash;

merchandise; trips; points for catalog purchases may ‘borrow” sales from the future and be

expensive to administer

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Recognition Programs

Usually based on annual performance (or even longer)

Hewlett-Packard Examples The 100% club- team-building & recognition program

for achieving 100% or more of quota Achiever’s Club- weekend vacation for two for the top

10-20% of reps in each region President’s Club- top 100 performers in sales

organization; 85 reps, 15 managers. Based on sales performance, customer satisfaction, resource management, sales planning, teamwork, leadership, enthusiasm, and being a role model.

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Administrative Issues

Manageable- costs/resources/frequency

Easy to understand- for reps & managers- know where the numbers/criteria are coming from

Sensitivity analyses- what happens if??? Especially important with new products

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Time for the mini-cases:

What do you recommend and why?

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Summary

There are many options available… First, figure out what you want to

rewardChoose measurable and

communicable metricsKeep in mind the cost of

administrating and what could happen given shocks to the system