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!!