Chapter 11
Sales contests require the following 5 things?
-Clearly defined, specific objectives -An exciting theme -Reasonable profitability of rewards for all salespeople (Probability of winning) -Attractive rewards -Promotion and follow-through
What are the advantages of sales contests?
-Designed to motivate salespeople towards a specific company goal and offer both financial and non financial rewards
What are the disadvantages of straight salary plans?
-Financial rewards are not tied directly to any specific aspect of job performance -salary plans appeal more to security-orientated salespeople than achievement-orientated salespeople -Sales managers need to keep a closer eye on salespeople to make sure they are doing everything they should be -During sales declines, selling expenses remain on the same level
What are the disadvantages of straight commission plans?
-Management has little control over the sales force -Can be difficult to motivate salespeople to focus on relationship-selling because they mostly are focused on short-term sales -Salespeople are more likely to "milk" current customers rather than developing new relationships with other customers -They have little motivation to focus on other functions that take time away from actual selling activities -Make salespeople's earnings unstable and hard to predict making turnover high when business is bad (may be combated by using a draw meaning that money is advanced to a salesperson in months when commission is low and that money is taken from earned commissions when sales improve but if sales don't improve and the rep cannot pay the draw back problems arise)
What are the pitfalls of sales contests?
-May only produce fleeting, short-term results -Salespeople may "borrow" sales from either before or after the contest so that their sales volume looks higher during the contest and sales drop before and after the contest period. -May hurt the morale of the salespeople because they are competing with one another for a reward -Some firms may use contests to cover up faulty compensation plans, meaning the salespeople do not have to be compensated a second time for what they already paid to do. -Contests should only be used once in awhile and should not be a frequent occurrence because only one person wins and the others will not be paid more for their extra effort
What are the advantages of straight commission plans?
-Motivates salespeople to make more sales and improve their sales productivity at least till they reach a high enough salary that further incremental increases become less attractive -Built in element of fairness because good performers are rewarded and poor performers are discouraged -From an administrative standpoint they are easy to compute and administer, and compensation costs directly vary based on sales volume -By increasing commission rate sales managers can encourage reps to sell certain items
What are the advantages of combination plans?
-Provides certain level of financial security -Also provides incentives -Selling expenses fluctuates with sales revenue -Sales managers have some control over reps non selling activities
What are key non financial awards and how and why are they important?
-Recognition programs (highest sales volume of the year, biggest percent increase in sales, biggest dollar increase, highest number of new customers...) -Expense accounts - expense items incurred by sales reps in the field (travel, lodging, meals, entertaining customers) access to expense accounts represents a n enhancement to a salesperson's compensation
What are the advantages of straight salary plans?
-Salespeople are able to spend their time on activities that may not result in immediate sales -Gives sales management more control over sales reps -is easy to administer -yeilds more predictable selling expenses
What are the disadvantages of combination plans?
-Selling expenses are less predictable -May be difficult to administer
Explain how and why a bonus component to compensation might be used as an incentive
-adding a bonus recognizes the achievement of some specific performance goal, may not be specifically focused on short-term selling goals but some type of relationship building goal
What are the dangers in paying salespeople too little?
-get what you pay for in regards to talent, poor performance -high turnover rate leading to more expensive training and recruiting costs
What are the dangers in paying salespeople too much?
-overpaying salespeople increases selling costs and decreases a firm's profit -can cause resentment and low morale for the others working at the firm when salespeople make more than even top management -makes it impossible to promote salespeople into management positions because they would be losing money by getting promoted to a job that pays less -leads to less motivation because as pay goes up, the next dollar earned would begin to show a diminishing effect on motivation
What are two major issues with making compensation and incentive programs work?
1. Assessing the relationship selling objectives - Are there enough incentives in place to motivate salespeople to form strong bonds with the customers and create long-term relationships with them? 2. Determining which aspects of job performance to reward - If a sale's force isn't allocating most of their time on activities that directly align with the firm's objectives than the incentive program needs to be redesigned.
Two forms of changing the compensation mix that have detrimental effects on employee performance?
1. Changing from a performance-sensitive scheme to a less performance-sensitive scheme ---- can lead to poorer performance and the loss of high performing salespeople from the company 2. Frequent changes, regardless of the type. Many companies who are underperforming look to the compensation programs to fix all the firm's issues but these should just be a tool and can not fix all the underlying issues within a firm.
What are the 5 steps to executing a compensation plan?
1. Research - look at past sales and relationships to compensation structures 2. Define objectives - What are the goals? Increase profit, increase productivity...? 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
When designing an effective combination compensation plan what 5 questions should be asked?
1. What is the appropriate size of the incentive relative to the base salary? 2. Should a ceiling be imposed on incentive earnings? 3. When should the salesperson be credited with a sale? 4. Should team incentives be used, and if so, how should they be allocated across members of a sales team? 5. How often should the salesperson receive incentive payments?
What are the two sets of conditions that favor the use of straight salary plans?
1. When management wishes to motivate salespeople to achieve objectives other than short-run sales volume 2. When the individual salesperson's impact on sales volume is difficult to measure in a reasonably time.
What are the 3 basic questions that drive successful compensation programs?
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?
Straight Commission Plans
A commission that is reflected directly by the level of sales a salesperson makes. The higher the level of sales, the higher the commission.
benefits
A package that satisfies a salesperson's basic needs for security such as medical and disability insurance, life insurance, and a retirement plan
What are the two paths for non-financial advancement a salesperson can take?
A salesperson can either hope to be promoted to a management position like district sales manager and eventually top management within the company. The other path is taking on more advanced positions within the sales force such as taking on more key accounts, leading sales teams and getting a better salary and more perquisites and perks such as a better car and better office facilities.
Quota
A specific, measurable and realistically attainable goal for sales volume, profitability of sales, or various account-servicing activities
What are some different types of reimbursement plans?
Direct reimbursement plans- involves direct and unlimited reimbursement on all "allowable and reasonable" expenses. This gives managers more control over what activities will be practiced to entertain a new customer and which activities the company will not be paying for to discourage those activities. Limited reimbursement plans- A set, limited amount for what a salesperson can spend. This keeps keeps the company on a budget but might hurt motivation. No reimbursement plans - plans that require salespeople to cover all expenses, most likely provide a higher salary. Related to straight commission plans and high-percentage commissions because they want the salesperson to spend the money and be motivated by the possible financial gain.
Incentive Payments
Many firms offer these in addition to a salary to encourage good performance. These incentives may be in the form of commissions tied to sales volume or profitability, or bonuses for meeting or exceeding specific performance targets
Combination Plans
Offer a base salary along with commission, widely popular due to avoiding some of the limitations of straight salary and straight commission plans
Firms are gradually going away from ___________ _____ and ____________ __________________ and towards _________________________ plans.
Straight salary plans Straight commission plans Combination Plans
What are the key elements in deciding what compensation (base pay plus any bonuses or commissions) and motivation program a firm should have?
What is the gross amount of compensation needed to attract, retain, and motivate salespeople? -What rewards motivate your specific group of salespeople?
What are the key issues surrounding expense accounts in relationship selling?
Who should pay for what while on a business trip? Should the company reimburse expenses on the business trip or should it all be taken out of the salesperson's salary? What portion should the salespeople pay for on the business trip?
Commission
a payment based on short-term results, useful to motivate a high level of selling effort
Bonus
a payment made at the discretion of management for achieving some level of performance. Commissions are usually paid for every sale that is made, bonuses are not paid till the salesperson surpasses some level of performance.
Straight Salary Plans
a plan in which employees receive a set compensation, regardless of their level of sales
It is a __________________ to try to motivate salespeople to do too many things at once because?
mistake 1. it becomes difficult for a salesperson to on improving performance dramatically in one area 2. It leaves a salesperson confused which ones are most important and how they will be evaluated and which rewards will be obtained for which performance
A ______ of rewards should be used because?
mix because different salespeople are motivated by different rewards
non financial incentives
opportunities for promotion or various types of recognition for performance such as special awards and publications in company newsletters
Sales contests
used to encourage extra effort aimed at specific short-term objectives, contest winners might be given cash, merchandise, or travel awards
