Compensation 11
Transcript of Compensation 11
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Salesperson
Compensation andIncentives
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McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc !ll rights7-2
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Key Defnitions
• Salary – a fxed sum o money paid atregular intervals
• Commission – a payment based onshort-term results, usually a dollar orunit sales volume
• Bonus – a payment made at
management’s disretion or ahievingor surpassing some set level operormane
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Compensation !ethods orSalespeople
CompensationMethod
EspeciallyUseful For
Advantages Disadvantages
Straight Salary New sales reps
New salesterritories
Many requirednonsellingactivities
Maximum
securityControl overreps
Easy toadminister
Predictableexpenses
No incentive
Requires closesupervision
Sellingexpensesremain same
during salesdeclines
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Compensation !ethods orSalespeople
CompensationMethod
EspeciallyUseful For
Advantages Disadvantages
Straight
Commission
ighly
aggressiveselling
Minimal requirednonselling tas!s
"hen company
can#t closelycontrol sales$orce
Maximum
incentiveManagers canencourage saleso$ certain items
Selling
expenses relatedirectly to sellingresources
%ittle security
%ittle controlover reps
Reps mayprovideinadequate
service tosmalleraccounts
Selling costsless predictable
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Compensation !ethods orSalespeople
CompensationMethod
EspeciallyUseful For
Advantages Disadvantages
Combination Similar sales
potential acrossterritories
"hen companywants to o$$erincentive but
maintain somecontrol
Some security
Some incentive
Sellingexpenses varywith revenue
Manager has
some controlover nonsellingactivities
Selling
expenses areless predictable
May be di$$icultto administer
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Combination "lans
• #$er a base salary plus someproportion o inentive pay
• !ost popular orm o ompensation
• %ell-suited or relationship selling byompensating or nonsellingativities &hile providing inentivesto motivate sales
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Design 'uestions or Combination"lans
• %hat is the appropriate si(e o theinentive relative to the base salary)
• Should a eiling be imposed on inentiveearnings)
• %hen should the salesperson be redited&ith a sale)
• Should team inentives be used) * so,ho& should they be alloated among team
members)• +o& oten should the salesperson reeive
inentive payments)
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Sales Contests
• Short-term inentive programs designed tomotivate to aomplish speif salesobetives
• Contest &inners reeive pri(es, reognition,and a sense o aomplishment
• Suessul ontests reuire.• Clearly defned, speif obetives• /n exiting theme• 0easonable probability o re&ards or all• /ttrative re&ards• "romotion and ollo&-through
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Critiisms o Sales Contests
• !ay not produe lastingimprovements
• Salespeople may borro& sales romanother period to inrease salesduring the ontest period
• "oorly administered ontests anhurt ohesiveness and morale
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1onfnanial 0e&ards
• 0eognition is an attrative re&ardbeause it ma2es a salesperson’speers and superiors a&are o
outstanding perormane• 3$etive reognition programs.
• #$er everyone a reasonable hane
o &inning• 0eogni(e the best perormers aross
several dimensions
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3xpense /ount 4ypes
• Diret reimbursement – diret andunlimited reimbursement o all 5allo&ableand reasonable6 expenses
• 7imited reimbursement – either setsexpense limits by-item or providespredetermined lump sum
• 1o reimbursement – reuires salespeopleto over all expenses8 usually ombined&ith higher total fnanial ompensationplan
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!ix and 7evel oCompensation
• /n appropriate mix and level oompensation should
& !aximi(e ompensation plan’s
motivational value
& Be air
& 0emain onsistent &ith frm’s resoure
apabilities