Chapter 9: Sales Force Compensation
Limit on earnings
(ceiling or a cap)
Good Sales Compensation Plan
(p. 258)
When straight commission is the best plan
- A company is in a weak financial position - Sales people need a great incentive - Very little missionary work if needed - Developing long term relationships with customers is not required - A firm uses part-time salespeople or independent contractors such as manufactures' agents
Compensation Plan: The salesperson's perspective
- A secure income and an incentive income - Simplicity ( understanding) - Fairness - Choice
KEEP IN MIND (Compensation Planning)
- No single plan fits all situations - It is very important to achieve external parity in salespeople's earnings - Management should solicit suggestions from the sales force regarding the compensation plan
Final steps in development of compensation plan
- Pretest the plan - Introduce the plan to the sales force - Install the plan, monitor it continuously, and evaluate it periodically
Compensation Plan: The company's perspective
- To motivate salespeople - To correlate performance with rewards - To control salespeople's activities - To ensure proper treatment of customers - To attract and keep competent salespeople - To be economical yet competitive - To be flexible yet stable
Advantage of straight commission
- incentive for the sales force team - opportunities are unlimited - strong motivator to work harder
Strengths of straight salary plans
- regular income that gives a degree of security - provides stability of earnings
Non-financial compensation
-Opportunity to advance in job -Recognition inside and outside firm -Enjoyment of the job
Combination plan
-Salary plus commission -Salary plus bonus -Salary plus commission and bonus
Salary
-a direct monetary reward - over a period of time
Basic Types of Compensation Plans
1. A straight salary 2. A straight compensation 3. Combination of compensations
Financial compensation
1. Direct payment of money 2. Indirect payment- paid vacations or company financed insurance programs
Steps in designing a sales compensation plan:
1. Review job description 2. Identify plan's objectives (specific) 3. Establish level of compensation 4. Develop the method of compensation 5. Decide on indirect monetary compensation 6. Pretest and install plan
Compensation
Most widely used method for motivating a sales force ( not necessarily the most effective)
___________ plus commissions plan is most popular plan (commissions typically equals _____ of total comp)
Salary; 40%
Level of earnings
The total dollar income paid to each sales representative for a given period of time
Each plan has advantages and disadvantages
True
There are inherent conflicts in the objectives of most compensation plans.
True
When straight salary plan works best
Works best when management 1. wants a well- balanced sales job 2. can supervise and motivate the reps properly Works best for when: - Sales recruits are still in training - Company wants to enter new territory or line of products - job entails only missionary sales activities
indirect monetary benefit
an item that has the same effect as money, though payment is less direct than a salary or commission.
Plan design should be based on items the sales force can ___________ and management can ___________
control; measure
Disadvantage of straight commission
difficult to supervise and direct the activities of salespeople because their concern is to sell more merchandise, without any regards to the company or the customers.
Bonus
is a lump-sum pay
Method of compensation
is the plan by which the reps earn or reach the intended level.
Commission base
measurement of performance to use in figuring payment
Limitations of straight salary
provides no direct incentive to the sales force
Commission
regular payment for the performance of a unit of work 1. Base 2. Rate 3. Starting point
Comp plan has large influence on implementation of the: ___________
strategic marketing plan
Commission rate
that is, the amount paid for each unit of accomplishment
Split commisions
when two or more salespeople work together on a sale, provision must be made to split any commission or other credit given.