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.