Sales Chapter 11 Review

Three primary methods of compensating people:

(1) straight salary, (2) straight commission, and (3) a combination of base salary plus incentive pay in the form of commissions, bonuses, or both.

There are different types of sales contestants:

-Individual vs themselves -individual vs others -Team vs team -It is important that everyone feels that they have a chance to win

Determining which aspect of job performance to reward

-Link rewards only to key aspects of job performance

Incentive Payments

-Offered to encourage good performance -Useful for a specific goal

Steps to Executing Compensation Plans

1. Research—Look at past sales and relationships to compensation structures. 2. Define objectives—What are the goals? Increase profit, increase productivity, etc.? 3. Develop plan—Choose pay plan type, target pay, results to be rewarded, and pay formula. The pay formula will involve the mix of base pay and commission. The decision to vary by product should also be made. 4. Test—Test the plan on a spreadsheet using realistic sales results. Analyze different scenarios. 5. Document—This should be easily read and understood by your sales force.

Questions for successful compensation plan:

1. Which compensation method is most appropriate for motivating specific kinds of selling activities in specific selling situations? 2. How much of a salesperson's total compensation should be earned through incentive programs? 3. What is the appropriate mix of financial and non-financial compensation and incentives for motivating the sales force?

Sales Contest

A contest might offer additional rewards for salespeople who obtain a specified volume of orders from new customers or who exceed their quotas for a new product during a three-month period. Contest winners might be given additional cash, merchandise, or travel awards.

Salary

A fixed sum of money paid at regular intervals. The amount of salary paid to a given salesperson is usually a function of that person's experience, competence, and time on the job, as well as the sales manager's judgments about the quality of the individual's performance.

Bonus

A payment made at the discretion of management for achieving or surpassing some set level of performance. Whereas commissions are typically paid for each sale that is made, a bonus is typically not paid until the salesperson surpasses some level of total sales or other aspect of performance. -Used to encourage high levels of performance

Recognition Program

A program designed to provide a reward to employees who achieve a notable goal.

Straight Salary

A specific amount of money paid to an employee for each week or month worked. (1) when management wishes to motivate salespeople to achieve objectives other than short-run sales volume and (2) when the individual salesperson's impact on sales volume is difficult to measure in a reasonable time. Because relationship selling may involve both of these conditions, it is not uncommon for sales jobs with heavy customer care to be compensated by straight salary.

Expense Accounts

Cover legitimate expenses, such as for travel, accommodation, food etc. -Different plans based on reimbursement

Benefits

Designed to satisfy the salesperson's basic needs for security. They typically include such things as medical and disability insurance, life insurance, and a retirement plan. The types and amount of benefits included in a compensation plan are usually a matter of company policy and apply to all employees. However, the benefit package a firm offers its salespeople should be reasonably comparable to those offered by competitors to avoid being at a disadvantage when recruiting new sales talent.

Compensation Plan

Everything that an employee receives from their employer including pay, benefits, and other rewards

Incentive Ceilings

Limiting the amount of rewards a salesperson can earn. -Beneficial because it means no one will earn substantially more money -Disadvantage is that people will slack off if they earn the incentive early

Direct Reimbursement Plan

One popular type of expense reimbursement plan involves direct and unlimited reimbursement of all "allowable and reasonable" expenses.

Straight Comissions

Payment for achieving a given level of performance. Salespeople are paid for results. Usually, commission payments are based on the salesperson's dollar or unit sales volume. However, it is becoming more popular for firms to base commissions on the profitability of sales to motivate the sales force to expend effort on the most profitable products or customers.

Variable Commission Rate

Pays relatively high commission for sales of the most profitable products, sales to the most profitable accounts, or sales of new products. Can also be used to direct the sales force's efforts toward other straight sales objectives, such as paying a higher commission on a new product line being introduced.

Combination Plans

Provide salary and commission and offer the greatest flexibility for motivating and controlling the activities of salespeople. The base salary provides the salesperson with a stable income and gives management some capability to reward salespeople for performing customer service and administrative tasks that are not directly related to short-term sales. At the same time, the incentive portion of such compensation plans provides direct rewards to motivate the salesperson to expend effort to improve sales volume and profitability.

Proportion of Incentive Pay to Total Compensation

Sales manager's decision concerning what proportion of the overall compensation package is represented by incentive pay should be based on the degree of relationship selling involved in the job. When the firm's primary selling approaches are directly related to short-term sales (such as increasing sales volume, profitability, or new customers), a large incentive component should be offered. When customer service and other non-sales objectives are deemed more important, the major emphasis should be on the base salary component of the plan. This gives management more control over rewarding the sales force's relationship selling activities.

Limited Reimbursement Plan

Some firms limit the total amount of expense reimbursement, either by setting maximum limits for each expense item (such as a policy that limits reimbursement for restaurant meals to $50 per person) or by providing each salesperson with a predetermined lump-sum payment to cover total expenses.

No Reimbursement Plan

Some firms require salespeople to cover all of their own expenses. Such plans usually involve paying the salesperson a relatively higher total financial compensation to help cover necessary expenses and thus represent a variation of the predetermined lump-sum approach. Such plans are most commonly associated with straight commission compensation plans involving high-percentage commissions. The rationale is that salespeople will be motivated to spend both the effort and money necessary to increase sales volume so long as the resulting financial rewards are big enough to be worthwhile.

Quota

The minimum requirement for a salesperson to earn a bonus. Quotas can be based on goals for sales volume, profitability of sales, or various account-servicing activities. To be effective, quotas (like goals) should be specific, measurable, and realistically attainable.

Non-financial Incentives

These might take the form of opportunities for promotion or various types of recognition for performance such as special awards and publications in company newsletters.

Assessing the Relationship Selling Objectives

This assessment of the sales force's current allocation of effort and levels of performance can then be compared to the firm's specific objectives for relationship selling

t or f: Merchandise may be a more attractive incentive than money.

True- Gives people the ability to boast and most of the time financial prizes mean the person won't spend the money on themselves

t or f: Contests should be used only on a short-term basis to motivate special efforts beyond the normal performance expected of the sales force.

True- they can hurt company morale and if they are needed to be effective than the organization should rethink the whole compensation plan.

Perquisites (or perks)

Used to make promotions more attractive (higher compensation, better office facilities etc.

When is a sale a sale?

When incentives are based on sales volume or other sales-related aspects of performance, the precise meaning of a sale should be defined to avoid confusion and irritation. Remember that a sale to a salesperson is revenue to a firm!

Commission

a payment based on short-term results, usually a salesperson's dollar or unit sales volume. Since a direct link exists between sales volume and the amount of commission received, commission payments are particularly useful for motivating a high level of selling effort.