S.F. Compensation

8/2/2019 S.F. Compensation

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COMPENSATING THE SALES FORCE

Sales Management: A Global

Perspective


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INTRODUCTION

Compensation in the global market is anextremely important managerial area

This is because the compensation plan:Helps attract potential salespersons

Impacts a salespersons motivation

Is a determinant of status and value

Determines lifestyle and purchasing power


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IN GLOBAL MARKET

Compensation package is complex andaffected by multiple forces:A balance between company policies and

country-specific elementsTotal compensation package includes financial

Salary, commission, bonus, stock options, benefits

and non-financial incentivesAwards, recognition, vacation, and promotion


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COMPENSATION PLANS

Hard to compare compensation plansbecause of their differences Lower salary, but higher deferred

components Cannot simply transfer a compensation plan

from one culture to anotherWhat works in one culture will not work in

another! Compensation should motivate sales force to

accomplish goals set by management Compensation may be changed to meet firm goals


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THREE TYPES OF COMPENSATION PLANS

Straight SalaryStraight Commission

Combination Plan


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STRAIGHT SALARY

Salesperson paid a set amount of moneybased upon hours or days worked Often adopted when salesperson must

devote significant amounts of time to otherdutiesMarket research, customer service,

administration

Simple to administer by sales manager

But, no direct link between performance andreward!More commonly used in Europe and may be

difficult to change by global sales managers


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STRAIGHT COMMISSION

Adopted by performance-oriented firms thatpay salesperson for their achievements Each person is paid a percentage of their total sales

Easy to evaluate performance Plans encompass an element of insecurity

Not believed acceptable in some cultures, like EU

Some evidence of acceptance in Japan

Can lead salesperson to shirk duties or pressure customers to

buy


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COMBINATION PAY PLAN

The combination plan is the most popularEmployed by more than 80% of US firms

May appear in many forms:

Salary, commission, individual and group bonusesBasic security bestowed by set salary

Motivation introduced by commission/bonus

Combination plans more time consuming forsales managers to oversee


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ETHICAL COMPENSATION ISSUES

Major dilemma hire the best salesperson forthe lowest possible salary. Other dilemmasinclude:

Pay at, below or above market salaries?Setting a cap on total pay?

Assigning lucrative sales territories?

Team vs. individual incentives?Frequency of paying commission?

Pay discrimination?


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DISCUSSION QUESTIONS

What are the advantages of each payplan? The disadvantages?

Which pay plan would work best for asoftware firm that is a market leader?


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SALES CONTESTS

Sales contests are short-term incentive programsimplemented to motivate salespersons to achievespecific goals or activities

For sales contests to be successful: Objectives must be specific and clearly defined

Contest theme must be exciting and clearlycommunicated

Each salespersons must believe they can win

Awards must be attractive to participants

Contest must be promoted and managed properly


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SALES CONTEST ELEMENTS

Contest Objectives

To increase total and product sales most common

Sales force must be given sufficient time

All contest information and rules must be clear Theme

Contests receive a theme to create excitement

Chance of winning Compete against self, others, or as a team?

In U.S. salesperson has about a 40% chance of winning


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TYPES OF REWARDS

Sales contests can offer many types of reward inthe form of: Cash, prizes, or travel

Perceived value very important as it must be of sufficientvalue to motivate additional effort

Promotion of contest important Launched as a special event with handouts

Large scorecards to communicate progress

Newsletter articles or interim prizes can keep motivationup


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SALES CONTEST CONCERNS

A number of concerns have been raisedabout sales contestsWhen not properly designed contests take a lot

of managerial time to administer Improper contests can actually de-motivate

Do sales contests generate additional sales?

Should sales force be paid twice for doing job?

If contests are for short-term, then why have anever-ending sales contest?


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How might a sales contest motivate salespersonnel to greater efforts?

Does a sales contest take into considerationthe needs of the buyer?

Is it possible sales contests have become apart of the compensation system? If so,

what does this tell us?


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NON-FINANCIAL INCENTIVES

Human needs require approaches other thancompensation to remain satisfied

Ability to grow

Recognition programs

Salesperson of the year, Presidents Club

Opportunity to travel

Educational assistance


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SALES EXPENSE PLANS

Linked to salary in some waysGlobally, firm may pay salespersons expenses

to live overseas that include family

Expatriate expenses are significant Expense plans include

Unlimited

Per diem

Limited expense plan


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UNLIMITED EXPENSE PLAN

All legitimate expenses are reimbursed

Plan has a number of advantages Communicates trust to the sales force

Sales manager can focus on more important issues Salesperson cannot complain that resources not

available to make sale

Sales force must be given guidance and expensesmust still be monitored to insure sound judgment Reimbursed expenses vary by country e.g.

entertainment and alcohol


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PER DIEM EXPENSE PLAN

The salesperson is given a set amount ofmoney for each day s/he is in the field

For example, US$250 per day

Budget can be set by multiplying rate times total dayssales force expected to travel

Single rate unlikely to work in all locales due tovarying costs

Sales manager must adjust per diem rates regularlyas prices expand or contract


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LIMITED EXPENSE PLAN

The firm sets a maximum daily amount paidfor each category of expenseThat is, US$125 for lodging, $50 for meals, $30

for auto rental, and $20 for miscellaneousLimits firms upper travel expense limit

Must be updated and will vary by location

When actual costs exceed plan, salesperson may try

to save in some areas to meet expenses in otherSalespersons attention may be diverted from client


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Is there a connection between the ethicalpractices of sales managers, regarding paymatters, and the ethical behavior of

salespersons?What is the purpose of expense plans?

Compare and contrast the advantages and

disadvantages of the three expense planscovered in this chapter


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CHAPTER SUMMARY

Compensation plan helps attract and maintainquality sales force Compensation is culturally influenced

Sales contests can provide short term motivation Must be properly planned and managed

Expense plans important Cover legitimate expenses, but always remember that

Sales Expenses = Profits

Rules for sales force compensation, contests, andexpenses must be simple and unambiguous!

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S.F. Compensation