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Compensation and control sales policies,and sales performance: the field sales

managers points of viewInes Kuster and Pedro Canales

Departamento CIM, Facultad de Economa, Universidad de Valencia, Valencia, Spain

AbstractPurpose The purpose of this paper is to analyse the relationship among the compensation system (fixed or commission) applied to salespeople, thesystem by which they are controlled, and the effects of both on individual performance and sales organization effectiveness. Previous research has beenextended in a different country/context, and from the field sales managers points of view.Design/methodology/approach First, a cluster analysis was used to obtain a set of groups of salespeople characterized by their maincompensation system (salary and/or commission). Also, ANOVA is used to analyze the significance of the differences due to the different compensationsystem.Findings The empirical data reflect the results of research involving 108 field sales managers and show that the compensation system used for thesalespeople has significant effects on individual salesperson performance and sales organization effectiveness and is related to the control system usedby the company. Companies with a compensation system based on a fixed salary use behavior control more than companies with a compensation

system based on commission; salespeople who receive a greater proportion of compensation as a fixed salary give better individual performance thanthose who are paid by commission; salespeople who receive a greater proportion of their pay as a fixed salary are more effective than those paid largelyby commission. Results do not show relevant differences among countries.Research limitations/implications Any generalisation of results is limited by the characteristics of this study, in particular by the sample used andthe particular situation of the country analysed (Spain). At the same time, and because the study relies on the subjective judgment of sales fieldmanagers perceptions, the measurement of some concepts is subject to various cognitive biases.Practical implications Compensation for salespeople is one of the most important issues in saleforce management as it has a significant effect onmotivation, which is critical, given the conditions of their working environment.Originality/value This paper analyzes the field sales managers points of view and not that of the salesperson or the sales team. This provides acloser perspective because field sales managers operate between the salesperson and sales manager. This paper presents a framework based onBaldauf et al.s and Piercy et al.s previous research, with two main contributions. The first contribution is the proposed direct analysis of therelationships between various antecedents of effectiveness. The second contribution is the consideration of two dimensions of the effectivenessconstruct: financial efficacy and field sales manager satisfaction.

Keywords Sales force, Compensation, Sales performancePaper type Research paper

An executive summary for managers and executive

readers can be found at the end of this article.

Introduction

Salespeople are one of the major contributors to a firms

survival by virtue of their role as nexus between the firm and

its customers (Simintras et al., 1996). Salespeoples traditional

function, a duty mainly to sell, is being reoriented towards

achieving longer term objectives on the basis of relationshipmarketing (Pullins, 2001; Kuster, 2002). Consultive sellers

add value to the buyer-seller retionship, with the goal of

increasing buyer dependence on the salesperson and the

companys product (Pelham, 2006). The actions and

behaviors of salespeople will affect the relationships with

customers and, even more, the performance of the firm

(Kuster and Canales, 2008).

So, in this context of sales, control is particularly important

and can be defined as the tasks related to directing, evaluating

and compensating salespeople (Anderson and Oliver, 1987).

Traditionally control can range between two extremes:

outcome control and behavior control (Marshall and

Mowen, 1993; Canales and Toran, 1998; Baldauf et al.,2001a, b; 2002; Kuster and Roman, 2006). The first one is

more objective, and is related to the number of sales and sales

costs. The second, behavior control, is both objective and

subjective, and is based on supervisors perceptions of their

saleforce. Which type of control is applied depends, among

other aspects, on how easy it is to observe the outcome

obtained by the salespeople, the ability to define the way

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing

26/4 (2011) 273285

q Emerald Group Publishing Limited [ISSN 0885-8624]

[DOI 10.1108/08858621111127018]

Received: April 2009Revised: September 2009Accepted: February 2010

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salespeople operate, the skills they need to perform their job

correctly and the uncertain environment in which they have to

operate. Thus, the compensation that a salesperson receives

will condition his/her behavior and may necessarily lead to a

certain outcome. Although all we know there are more aspects

that can motivate salespeople, according to Darmon (1987)

and Darmon and Rouzies(2002), money or an equivalent

element, is a main motivational tool and can be used tocontrol salespeople (Coughlan and Narasimhan, 1992;

Cooke, 1999).

In a relationship selling environment, one practical concern

for sales managers has been how to best remunerate

salespeople to achieve long-term and changing objectives

(Schultz and Good, 2000; Pullins, 2001). Several studies have

demonstrated the effects of compensation systems on

salesperson and customer behavior. For example, Sharma

and Sarel (1995) provide evidence that compensation systems

based on customer satisfaction increase salespeoples

customer service response compared with salespeople whose

incentives are based on turnover. The authors state that one

of the most important issues in compensation is determining

the appropriate proportion of salary versus commission. Onsimilar lines, Pullins (2001) states that managers must solve

this debate between salary and commission; and also points

out it could be interesting to analyse how salary and

commission structures impact sales strategies. Schultz and

Good (2000) confirm that a conducive environment for

encouraging salespeople to construct long-term customer

relationships encourages long-term compensation structures.

According to Jobber and Lancaster (2003), sales managers

should consider carefully the compensation plan for their

salespeople because the decision has important consequences.

In this context, the main objective of the present paper is to

analyse the relationship between the basic compensation

system (salary and commissions) and both individual

salesperson perform ance and sales organization

effectiveness. So, we define the concepts and then proceed

to analyse the relationships between them. Later, an empirical

research with field sales managers was carried out with a

methodology similar to that used by Cravens et al. (1992).

Many companies have struggled for years to discover just the

right formula or approach for compensating salespeople

(Caruth and Handlogten-Caruth, 2006). In this sense, the

field sales managers were divided in two groups based on the

compensation structure (salary- or commission-based). The

final objective was to detect possible differences between both

groups in terms of control type, salesperson performance, and

salespeople effectiveness. Since our unit of analysis was the

field sales unit, our target respondents were the field sales

managers. This study followed the procedure used in previous

studies such as those by Cravens et al. (1992), Barker (1997),Piercy et al. (1997), Baldauf et al. (2001a 2002), and Piercy

et al. (2004), among others.

The main objective of this exploratory study is to analyse

the effects of compensation structure and salespeople control

on salesperson performance and business effectiveness. In this

sense, three main objectives were established. First, to

examine the relationship between compensation system

(fixed or variable) and control system (behavior or

outcome). Second, to examine the relationship between

compensation system and salesperson performance. And

thirdly, to examine the relationship between compensation

and salespeople effectiveness. These objectives gave rise to

two hypotheses and one research question.

This paper presents a framework based on Baldauf et al.

(2001a, 2002)) and Piercy et al.s (2004) previous research,

with three main contributions. Baldauf et al. (2001b, 2002)

provide strong support for positive relationships between

behavior-based control and salesperson characteristics,

salesperson outcome performance, and sales organizationeffectiveness. Piercy et al. (2004) show that management

control is a relevant predictor of perform ance and

effectiveness and, surprisingly, incentive pay has no effect on

salesperson performance. Our first contribution is the

proposed direct analysis of the relationships between various

antecedents of effectiveness and effectiveness. The second

contribution is the consideration of two dimensions of the

effectiveness construct: financial efficacy and field sales

manager satisfaction. Finally, the third contribution focuses

on the unit of analysis. So the field sales managers have been

considered instead of the salespeople or the sales managers.

According to Baldauf et al. (2001b), field sales managers are

closest to the salespeople than other sales managers staff; they

play a critical role in the success of sales teams and sales teams

performance (Lyons, 2006). In this sense, diverse interviews

were carried out with diverse sales field mangers from diverse

sectors and industries.

In the next section, we review the literature and present the

conceptual framework and hypotheses. The penultimate

section describes the methodology. In the last section, we

present the results and discussion and the managerial

implications. Finally, we present the conclusions, limitations

and future research.

Key elements in the relation compensation-control-performance-effectiveness

The field sales managers play a relevant role in supervising

and controlling sales force teams. They are in a frontier placebetween sales management and salespeople. In this sense,

they can get useful information related to the salespeople

behavior and also information related to the retribution and

control policies of the sales management. They must transfer

this information in a double sense. This paper focuses on two

aspects:

1 the retribution and control policy of the salespeople; and

2 the consequences of these policies on sales performance.

The sales policy: compensation and control

As discussed above, traditionally compensation for

salespeople has been closely linked to concepts such as

control and effectiveness. Thus, Churchill et al. (1994)

consider that one of the main aims of any sales compensation

program is to stimulate and influence the salespeople to do

what management wants them to do, in the way management

wants and in the required time. Thus, a compensation

program can reward both the desired activities and

performance outcome; motivating salespeople to concentrate

their efforts in a new direction. These efforts will influence

both individual and company outcome.

In a severe sense, compensation can be defined as the

economic reward for performing a task. In the case of sales, it

should have as a minimum, the following characteristics:

fairness, stability, act as an incentive, be understandable,

attractive, optimize the cost-profit ratio, and reward true

Compensation and control sales policies, and sales performance

Ines Kuster and Pedro Canales


Volume 26 Number 4 2011 273285

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effort (Strafford and Grant, 1993). The main aim of

remunerating salespeople is to reward effort for the outcome

of their work. The main components are a fixed wage,

commissions and incentives (Chonko et al., 1992; Strafford

and Grant, 1993; Donaldson, 1998; Jobber and Lancaster,

2003). The particular basic compensation technique used

depends on a series of variables or use situations which make

one technique more suitable than another. Moreover, itcannot be said that one technique is better than the others as

they all have advantages and drawbacks (Chonko et al., 1992;

Strafford and Grant, 1993; Donaldson, 1998) (Table I).

Related to an antecedent of compensation, control of

salespeople (CO) can be defined as the degree of monitoring,

direction, evaluation and reward that managers exercise over

salespeople in the perform ance of their tasks and

responsibilities (Anderson and Oliver, 1987); in order to

achieve company objectives (Jaworski, 1988; Jaworski et al.,

1993). To do it, sales management can opt for two very

different, but complementary systems to carry out control

tasks: behavior control and outcome control (Anderson and

Oliver, 1987; Marshall and Mowen, 1993; Canales and

Toran, 1998; Baldaufet al., 2001a, 2002; Kuster and Canales,2008).

Following Oliver and Anderson (1994, 1995) and Lapierre

and Skelling (2005), among others, three elements can be

used to classify the type of control focus that companies use.

First, in companies which use behavior control to a greater

extent, management is more involved in supervision, direction

and contact between salespeople and supervisors than when

outcome control is used. Second, when companies place more

emphasis on behavior than on outcome, they use more

subjective mechanisms to control their salespeople. Third, the

control system used is related to the compensation system,

which will be based on a fixed salary in the case of behavior

control and on commission when outcome control is applied.

In practice, companies also use hybrid control systems,

combining both behavior and outcome control. Thus, in

accordance with the proposal by Anderson and Oliver (1987),

our first hypothesis considers a relationship between the

compensation system for salespeople and the type of control

system used. It is argued that compensation which uses a

greater proportion of fixed salary is used with behavior control

and compensation based on commission with outcome

control, therefore:

H1. Companies with a compensation system based on a

fixed salary use behavior control more than companies

with a compensation system based on commission.

The effects on sales performance

The achievement of acceptable sales results is an essential

requirement of companies performance as well as a

requirement which enables salespeople to achieve their

individual objectives. That is why a great part of the work

done by field sales managers centers on motivating their

salespeople, and that is considered to be a tool for achieving

success (Futrell, 2003). In this sense, a field sales manager is

responsible for a group of salespeople (typically less than ten),

and plays a pivotal role in applying the sales management

control strategy (Baldauf et al., 2001a). In spite of that, the

evaluation of the results obtained by salespeople should not belimited to a statistical analysis or a comparison with the

objectives planned; sales management must also value the

acquisition of information related to the salespeoples

environment and present and future effects on their work

(Chonko et al., 1992; Ingram et al., 2001; Kuster and Roman,

2006).

In this context, and following Churchill et al. (1985, 1994),

Grant and Cravens (1999), Baldauf et al. (2001a, b), Piercy

et al. (2001) and Roman et al. (2002), among others,

performance (PER) signifies a result of behavior which is

evaluated in terms of its contribution to the companys

objectives and is determined by factors the salesperson can

control, for example sales experience, active listening or

adaptive selling (Johlken, 2006). Thus it is possible to

determine the existence of good and bad salespeople

(Cravens et al., 1992; Barker, 1997; Piercy et al., 1997).

According to Anderson and Oliver (1987), control systems

Table I Compensation systems for salespeople

Fixed salary Only commission Salary 1 Commission Salary 1 Incentives

Use

Team sales New goods Need for incentives Difficult individual evaluation

Cyclical sales Unknown company Search for security Provide long-term incentives

Long negotiation period Part-time salesperson

Non sales tasks

Difficult to measure sales

AdvantagesEasy to administer Maximum incentive Provides strong incentive Flexible application

Loyalty to company Reduction of fixed costs Control over non-sales activities Team spirit

Control over sales cost Attracts good salespeople Improves performance Adapted to objectives

Security for salesperson

Disadvantages

Not very fair Little control over salesperson Insufficient incentive, sometimes Complexity

Doesnt motivate Problems with changes in the environment Administrative control Subjective evaluations

Not very flexible Benefits the best zones Reduces the motivational effect

Doesnt relate expenses and income

Source: Based on the work of several authors (Chonko et al., 1992; Donaldson, 1998; Strafford and Grant, 2002; Jobber and Lancaster, 2003)





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based on outcome and remunerating by commissions improve

a salespersons individual performance more than behavior

control and fixed salary, whereas Cravens et al. (1993)

obtained the opposite result and suggested a direct relation

between a fixed salary and salespeoples individual outcome.

Piercy et al. (1998), expected that salespeople who perform

well in carrying out the tasks allocated by management will

achieve higher performance, but their analysis shows nodifferences in compensation methods used in high and low

performance group. Thus, and in view of the lack of

agreement, w e propose the f ollowing question f or

examination:

RQ1. Do salespeople who receive a greater proportion of

compensation as a fixed salary give better individual

performance than those who are paid by commission?

There is no clear, globally accepted differentiation in the

literature between the terms performance and effectiveness.

Sometimes authors do not see differences between them

(Szymanski, 1988); in other cases, what for some is

performance is effectiveness for others (Walker et al., 1979;

Weitz, 1981); and yet others consider performance consists ofeffectiveness plus efficiency (Homburg et al., 2004). For

example, B arker ( 19 97 ) associates the concept of

performance to each salespersons individual work and the

concept of effectiveness to the organization globally, or the

sales unit; but even this author uses the term performance in

both situations in a more recent piece of work.

In our opinion, sales organization effectiveness (FE) is an

overall evaluation of the outcome obtained by the

organization, or by a group of salespeople who contribute

their individual achievements (Churchill et al., 1994; Roman

and Munuera, 2003; among others). Commonly used

financial indicators are turnover, m arket share or

contribution to profit (Jackson et al., 1995; Ingram et al.,

1997). In addition to financial indicators, other effectiveness

indicators should also be considered related to customer

satisfaction in, for example, order processing or product

quality (Baldauf et al ., 2001b). A sales organizations

effectiveness is the consequence of many influences, both

internal (management, salespeople) and external (working

environment) and refers to some indicator of the result for

which the salesperson is partially responsible and which is also

influenced by a series of factors which the salesperson cannot

control, known as non-personal factors or organizational and

environmental variables (Churchill et al., 1985, 1994; Grant

and Cravens, 1999; Baldauf et al., 2001a b; Piercy et al.,

2001; Roman et al., 2002).

Following the proposals by Anderson and Oliver (1987)

and Jobber and Lancaster (2003), salespeople subjected to

behavior control, who are therefore paid a fixed salary, are

more willing to accept and cooperate in achieving the

objectives set by the company; they are also less afraid of risk

and are not responsible for the results of their actions. Given

that we can assume that companies will chose actions to

facilitate the achievement of their objectives, we propose the

second hypothesis:

H2. Salespeople who receive a greater proportion of their

pay as a fixed salary are more effective than those paid

by commission.

Methodology

Population and sample

The population for this study comprises the field sales

managers of small and medium enterprises in a specific

geographical area (Valencia, Spain). SMEs are a key element

in Spains economy; that is, 99.8 percent of total number of

firms, and 89 percent of overall employment (Ministry ofIndustry, Tourism and Commerce, 2007). Despite the

importance of measuring business performance, there is

little research on marketing effectiveness (Eusebio et al.,

2006) and sales management practices (Avlonitis and

Panagopoulos, 2007) among SMEs. In this field, Spain has

recived relatively little attention from organizational research

(Aragon-Correa et al., 2006).

The Spanish market is relatively well developed, part of the

European Union, and has a good rate of growth over recent

years. According to the Spanish Central Business Directory

(DIRCE), in 2006, the number of SMEs reached 99.87

percent of the 3,165,619 of Spanish companies, excluding

agriculture and fisheries.

The Hofstede Analysis illustrates that uncertainty

avoidance is ranked the highest for Spain, while the other

three dimensions (power distance, individualism and

masculinity) are ranked moderately. This is a result of

Spains feelings and concerns regarding rules, regulations, and

career security (Kuster and Canales, 2008). Hofstede has

developed four dimensions of differences in values that

comprise the elements of national culture which are especially

relevant to management research (Deshpande and Farley,

1999).

So, this paper focuses on this country with the aim of

comparing this context with other countries where sales

researches have been carried out.

For this, the data were obtained through personal survey of

field sales managers from different companies in Spain.

According to Pelham (1993) and Greenley (1995), those who

manage and control, such as field sales managers, have

enough reliable company-related information. These

employees have information related to decision making,

efficiency and the environment. Additionally, formal team

leadership is a critical variable in the success of teams and

team performance (Lyons, 2006); and this fact is especially

true in small and medium-sized companies (Pelham, 1993).

During two months, diverse field sales managers of a

specific area were visited and interviewed. The use of such

interviews allowed us to have better access to sales leaders and

improved the veracity of the information. Non-probability

sampling was employed for convenience, which provided us

with 108 valid questionnaires (sampling error ^9.2 percent);

enough sample size to apply the appropiated stadisticaltechniques. This sampling procedure allowed to get a high

response rate with not lost values.

The sample was characterized with reference to the

characteristics of the firms where the 108 salespeople

managers work, the characteristics of sales managers, and of

their own salesforce. The following characterisation variables

were used:. the sector in which they operate;. the size of the sales organisation; and. the variation in company sales and in their sector over the

last two years (Piercy et al., 1997).





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Most of the firms operate in the consumer goods sector (42.6

percent) and the industrial goods sector (30.6 percent). Sales

forces are larger in service sector companies, especially in

consumer services (an average of 243 salespeople). This is

also the sector with the greatest average increase in sales, 23

percent in comparison to 6-8 percent in the other sectors. The

data on company sales variation does not show any big

differences.Of the team leaders interviewed, almost half were between

33 and 39 years old, with a wide experience in commercial

work (more than 90 percent have more than five years

experience), while only 4 per cent have had management

duties for more than ten years. The majority are men and

more than half are university educated.

To define the profile of the salesforce, we used the variables:. compensation system;. sales figures variation; and. team size.

The compensation system for salespeople is basically mixed

with only 2.8 percent using exclusively fixed compensation.

Sales variation is mainly between 6 and 10 percent, and only

3.9 percent of the teams have seen a decrease in sales. Theaverage number of salespeople in the different teams is around

9.

Measurement of variables

To measure the different elements in the proposed relations,

we used constructs adapted from previous research whose

psychometric properties (reliability and validity) have been

widely tested throughout the literature. This was done to

ensure content validity. In addition to obtaining our own

conclusions, we have been able to compare our results with

those in the other studies (the definitive items can be seen in

the Appendix Tables AI-AIII).

The control the sales manager has over the salespeople is

measured according to the initial proposal by Anderson andOliver (1987), developed by Babakus et al. (1996a), and then

used by several authors in their research (for example, Baldauf

et al., 2001a, 2002). It is a 13 item scale, where the

interviewees are asked to mark on a scale from 1 Not at all

to 10 To a large extent Always, to what extent they

perform control tasks.

Analysis of salesperson performance provides information

on their contribution to the companys results and is a

consequence of their behavior. It is important to determine

the influence of their own effort to achieve the results and the

effect of external factors beyond their control (Baldauf et al.,

2002). The contribution by salespeople to a companys

outcome is analyzed by seven items, on a seven-point Likert

scale ranging from 1 Needs to improve to 7 Exceptional,

based on the scale developed by Behrman and Perreault

(1982); and which has been used in later studies by authors

such as Spiro and Weitz (1990), Cravens et al. (1993); Sujan

et al. (1994), Barker (1999), and Bigne et al. (2003).

To analyze effectiveness we measure the two dimensions

proposed before: financial effectiveness and satisfaction. The

first group allowed analysis of financial effectiveness of the

team in relation to its most direct competitor over the last two

years and in relation to its own objectives (Cravens et al.,

1993; Babakus et al., 1996a; Barker, 1999). The second

provided information on the salespeoples effectiveness

according to the supervisor, namely satisfaction (Baldauf

et al., 2001b), which is also an indirect measure of customer

satisfaction.

In sum, the questionnaire has filled up by field sales

managers and it shows their perceptions of the salespeople

behaviors they supervise. As stated before, performance is

related to the individual effort of each salesperson whereas

effectiveness is the result of all the organization. This last

concept has two dimensions: satisfaction and financialeffectiveness. Satisfaction (SAT) is related to field sales

managers perceptions of the effectiveness and financial

effectiveness is the financial dimension of effectiveness and so

more objective than the other one.

Several phases were followed to evaluate the psychometric

properties of the scales used. In a first phase, we calculated

the item-total correlations in isolation for each scale used in

the questionnaire. Following Saxe and Weitz (1982), we

eliminated the items with a value below 0.35 and then,

f ollowing A nderson and G erbing ( 19 88 ), w e did a

confirmatory factorial analysis which allowed us to further

refine the scales and evaluate their dimensionality. We then

calculated each scales internal consistency using the indices

proposed by Fornell and Larcker (1981) and Bagozzi and Yi

(1988), of extracted variance and compound reliability

respectively. Finally, we checked scale construct validity

(convergent and discriminant). Convergent validity was

analyzed by t-student statistical value for each item studied

by the confirmatory factorial analysis, requiring significant

values for the standard loads greater than 0.5. To analyze

discriminant validity, we examined whether the scales

represent substantially different concepts by calculating the

correlations between each pair of scales, squaring them and

verifying whether they are below the extracted variance index

(EVI) for each scale (Anderson and Gerbing, 1988).

For the confirmatory factorial analyses, we used LISREL

8.30, using the maximum verisimilitude method and the

variance-covariance matrix as entry matrix, requesting the

standardized solution (Hair et al., 1999).In the process of refining the scale items, after a first

estimation by confirmatory factorial analysis, both the

significance of the standardized coefficients (t value greater

than 1.96) and the percentage of variance they explain for the

latent variable (which is recommended to be above 0.5) were

taken into account. The program provides modification

indexes calculated for each non-estimated relationship and

whose value corresponds approximately to the Chi-squared

reduction which would be obtained if the coefficient were

estimated (Hair et al., 1999). The standardized residues

represent the differences between the observed covariance

matrix and the matrix estimated by the program, and so the

existence of residual values greater than ^2.58 would indicate

a significant prediction error for a pair of indicators.

In addition, fit quality is a measure of the correspondence

between the observed entry matrix with that which is

predicted by the proposed model (estimated matrix). Given

that the goodness of the fit of the models estimated from the

structural equations is not described by one statistical test, a

combination of several measurements is required to

determine the strength of the model prediction (Hair et al.,

1999).

The evaluation indices for model fit used in this research

followed the recommendations reported by Hair et al. (1999).

The whole process led to a reduction in the number of

items used in the scales, which are described in Table II.





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Methodology

To carry out this study, first, we performed a cluster analysis

with the information on the percentage of fixed and variablecompensation in the salespeoples total salary. The object of

this cluster analysis was to obtain a set of groups of

salespeople characterized by their main compensation

system (salary or commission). These groups should

maximize internal homogeneity (intra-group) and at the

same time, be different from the other groups, i.e. maximize

heterogeneity with the other groups. Wards method was

chosen from among the possible variance methods and it

groups individuals hierarchically to minimize intra-group

variation in the structure formed (Mnguez and Fuentes,

2004).

To choose the number of groups suitable for the proposed

study, we followed Barkers (1997) proposal to separate

salespeople in two groups and analyze them to discover any

significant differences between them. Thus, we analyzed the

dendogram and to maximize intra-group differences we chose

two groups, group 1 with 48 teams and group 2 with 60.

Furthermore and in accordance with Hair et al. (1999), we

used ANOVA to analyze the significance of the differences

due to the different compensation system, in relation to the

type of control, individual salesperson performance and

company effectiveness. Table III shows the average outcome

for each type of compensation and group.

So, group 1 is characterized by a high fixed compensation,

with an average of almost 75 percent, and commission

reduced to 25 percent of the salespersons total salary. Group

2 shows similar but inverse percentages, i.e. the basic salary is

commission which constitutes almost 80 percent and a small

percentage, 20 percent is the fixed compensation. In both

cases the differences are significant.

Results

After the descriptive analysis, we then studied the possibleeffects of the type of compensation, fixed and/or variable, on

the type of control system used, individual salesperson

performance and organization effectiveness; all under the

perceptions of the field sales managers.

The hypotheses and research question were tested using

ANOVA test. Individual measures that demonstrated

acceptable reliability and validity for the dimensions were

combined into scales by taking the arithmetic mean of the

items measuring each dimension (see the Appendix Tables AI,

AII and AIII). Table IV presents the correlations among the

measures for each dimension. After testing the hypotheses

Table II Evaluation of the final scales

Standardised coefficients

Item l t-value R2 Reliability Model fit

CO1 0.743a 0.552 rc 0.914 x2(9) 20.63

CO2 0.819 8.61 0.671 EVI 0.641 p-value 0.01

CO3 0.842 8.87 0.709 GFI 0.940

CO4 0.848 8.94 0.72 AGFI 0.910CO6 0.767 8.01 0.588 CFI 0.974

CO9 0.802 8.41 0.643 RMSEA 0.08

RMSR 0.031

NNFI 0.957

PER1 0.655a 0.429 rc 0.927 x2(5) 7.81

PER2 0.854 7.54 0.729 EVI 0.652 p-value 0.166

PER3 0.859 7.57 0.738 GFI 0.972

PER5 0.828 7.36 0.685 AGFI 0.916

PER6 0.863 7.59 0.744 CFI 0.992

RMSEA 0.072

RMSR 0.019

NNFI 0.984

FE2 0.923a 0.853 rc 0.876 x2(19) 62.92

FE4 0.955 0.064 0.912 EVI 0.646 p-value 0.00

FE5 0.680 8.66 0.463 GFI 0.873

FE6 0.591 7.03 0.349 AGFI 0.759

SAT1 0.791a 0.626 rc 0.805 CFI 0.900

SAT2 0.810 7.81 0.656 EVI 0.511 RMSEA 0.14

SAT3 0.561 5.50 0.314 RMSR 0.079

SAT4 0.649 6.43 0.422 NNFI 0.852

Notes: rc Construct reliability; EVI Extracted Variance Index;aValue not calculated since the saturation of this item is equal to one to fix the scale of the

latent variable

Table III Compensation system

Compensation system Group Mean (%)

Fixed (% of total salary) 1 73.58

2 20.53

Variable (% of total salary) 1 25.29

2 79.47





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and research question, we analyze every item for each

dimension. The results are represented graphically for greater

clarity. More in-depth information can be found in the

Appendix Tables AI-AIII).

Table V presents the results of the hypothesis and research

question testing. This table shows the cluster means and

standard deviation, the ANOVA values, and the contrast tests

results of the two hypotheses and the research question.

Related to the first hypothesis, data shows that companies

with a compensation system based on a fixed salary use

behavior control (mean 7:36) more than companies with a

compensation system based on commission (mean 5:23).

These differences exist between both groups and are statisticallysignificant. For this, H1 can be accepted (p , 0.1). Figure 1

shows the results of the t-test analysis between group 1, with a

higher percentage of fixed salary and group 2, with a higher

percentage of commission. The items measure the extent to

which the salespeople leaders perform different control tasks. In

all the items analyzed, group 1 (fixed compensation) scores

higher than group 2 (variable compensation). The biggest

differences can be seen in the control aspects related to the

mutual contribution of information on sales tasks (CO2, CO3

and CO6). As a result, salespeople in group 1 are subject to

greater control, especially over their behavior. These results are

similar to those reported by Piercy et al. (1997) with field sales

managers located in the United Kingdom and Baldauf et al.

(2001a) in Australia and Austria.

RQ1 tried to answer whether salespeople who receive a

greater proportion of compensation as a fixed salary give

better individual performance (mean

4:

72) than those whoare paid by commission (mean 4:08); and our results can

answer affirmatively (p , 0.1). In this sense, Figure 2 shows

the results for salespeoples performance as evaluated by their

supervisors. As can be seen, in all cases group 1 with the

greatest proportion of fixed salary, is evaluated more highly

than group 2, with a greater proportion of commission.

However, not all the differences are significant. This situation

can be explained by item PER2 which concerns aspects

related to possible sales situations which are profitable for the

salesperson. Thus, when a salesperson is rewarded by

commission, he makes more effort. The results are similar to:. the study of Cravens et al. (1992) with 99 Australian sales

organizations;. the study of Barker (1997) with 250 Canadian sales

executives; and. the study of Piercy et al. (1998) with field sales managers

located in the United Kingdom.

The greatest differences can be found in the items related to

long term operations and the similarity between the

salespersons and the companys objectives (PER5 and

PER6) which shows that salespeople who are rewarded by

incentives do not feel they belong to a group and are more

concerned about their own objectives in the short term.

Lastly, and related to the second hypothesis, the paper

analyses the effect of compensation system on effectiveness.

In this sense, financial effectiveness and field sales managers

satisfaction are greater in group 1, showing significant

differences. The results provide support for H2; that is,

salespeople who receive a greater proportion of their pay as afixed salary are more effective than those paid largely by

commission. Effectiveness means the results for which the

salesperson is only partially responsible as they depend on

factors which are beyond his/her control. Note that the

effectiveness analysis is carried out from two perspectives,

financial effectiveness (FE) and supervisor satisfaction with

the salespeople (SAT). Figure 3 shows the data on sales

organization effectiveness. In all the items, the results for

group 1 with the higher proportion of fixed compensation

exceed those of group 2, with a greater proportion in

commission. In this analysis, all the differences are significant,

and so it can be stated that teams rewarded with a greater

proportion of fixed salary are more effective than those who

Table V Results of tests

Mean SD ANOVA Fs Sig.

ControlGroup 1 7.36 1.62 34.55 0.00

Group 2 5.23 2.05

Performance

Group 1 4.72 1.03 8.38 0.00

Group 2 4.08 1.21

Financial effectiveness

Group 1 3.64 0.72 22.13 0.00

Group 2 2.85 0.95

Satisfaction

Group 1 5.07 1.03 17.79 0.00

Group 2 4.24 1.01

Figure 1 Compensation and control Figure 2 Compensation and performance

Table IV Correlations estimates

CO PER FE SAT

Control 1

Performance 0.58 1

Financial effectiveness 0.69 0.59 1

Satisfaction 0.62 0.67 0.53 1





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are paid by commission. Thus, fixed salary is more effective

both financially and according to their supervisors than those

remunerated on a commission basis.

The biggest differences are found in the items of

effectiveness in relation to the objective of the salespeople

themselves (FE2, FE4 and FE6) due to the fact that

salespeople remunerated by commission seek to achieve their

objectives rather than those of their company or team. We

would also emphasize the difference in new customer search

(SAT2), this is due to the fact that salespeople on commission

look for short term outcome and therefore sell to the

customers they already have. These results confirm in a way

those reported by Piercy et al. (1998) with field sales

managers located in the United Kingdom and Baldauf et al.

(2001a) in Australia and Austria. Must be noticed that these

authors analysed the effects of control system on effectiveness;

so and indirectly the effect of fix salary is analysed.

Although we have found similarity of the results in our and

other countries, Table VI shows there exist differences among

countries in relation to Hofstede Index indicators. So, the

cultural differences among countries could not suggest a

cultural moderator.

In sum, Table VII shows the results of our and the otherstudies related to this field.

Conclusions

This study has been developed with a view to furthering

knowledge in one of the most important aspects of business

activity, salespeople management, which is not always given

appropriate treatment in marketing literature. So, through

this study more light is given to sales management literature

due to diverse facts. First, because of this paper tries to join

previous research in this field. Additionally, this paper focuses

on the field sales managers perceptions. And finally, the study

has been carried on in a country where this field of study is

even nowadays relatively new. For these reasons and because

of data obtained, our findings have strong managerial

implications. Even more, compensation plan for the

salespeople has important consequences on organization

effectiveness. We have focused on studying the relation

between the type of basic compensation for salespeople (fixed

or variable), control systems used by supervisors, salesperson

performance and sales organization effectiveness.

Th e fi rs t c on cl us io n t o t hi s re se ar ch i s t hat , a s

demonstrated by previous studies, the compensation system

used for the salespeople has significant effects on salesperson

performance and sales organization effectiveness and is

related to the control system used by the company. This

result seems logical because outcome control and

consequently compensation by commission systems require

careful monitoring of the sales figures achieved by the

salesperson being evaluated. We can therefore state that

compensation based on a fixed salary is used when behavior

control is applied and compensation based on commissions is

used when outcome is controlled. Compensation by fixed

salary is related to control over salespeople w hile

compensation by a system of commission is related to

motivation. Thus, a combination of the security of a fixed

salary and motivation for the variable part of it makes thesalesperson fully develop his abilities in the job, obtaining

better outcome and making the company more effective. For

this reason, in practice most firms use mixed compensation

systems with a partly fixed, partly variable salary.

The second conclusion is that the results show that

behavior control requires a compensation system based on a

fixed salary. This is because if a company wants to introduce a

behavior control system, the tasks to be performed by the

salespeople must first be defined, and as the salespeople

cannot decide what actions to perform, the risk of such

actions must lie with the company. Given that the company

will define the actions so that they facilitate the achievement

of its objectives, this system makes teams more efficient.

Table VI Hofstede analysis

Country Power distance Individualism Masculinity Uncertainty avoidance

Australia 36 90 61 51

Austria 11 55 79 70

Canada 39 80 52 48

Spain 57 51 42 86

United Kingdom 35 89 66 25

World average 55 43 50 64

Source: Taylor (2003)

Table VII Comparative results

H1 RQ1 H2

Barker (1997) 2 2

Piercy et al. (1997) 2 2

Piercy et al. (1998) 2 2

Baldauf et al. (2001a, b) 2 2

Baldauf et al. (2001a, b) 2 2

Our results

Notes: 2 Not analysed; + Positive relationship

Figure 3 Compensation and effectiveness





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However, using compensation systems based on a fixed salary

does not mean that outcome control should be forgotten, in

fact there are no significant differences over the control of this

aspect between the two groups analyzed. Despite these results

we can conclude that salespeople who are remunerated

through a greater proportion of fixed salary give a better

individual performance than those remunerated by a system

which varies according to their results.The third conclusion is that if a company is going to

introduce a compensation system based on commission on

sales, it should concentrate on controlling the outcome rather

than behavior, since the salespeople assume the risk of their

work and therefore must be able to decide which actions they

consider are most appropriate for achieving the objectives.

Furthermore, given that compensation will be based on sales,

outcome must be controlled since it is the basis for the

compensation. Compensation based on commission will only

be appropriate when the company cannot determine a priori

the best course of action for their salespeople to achieve the

objectives being contemplated since the salesperson will focus

his objectives to benefit himself rather than the company and

will therefore be less efficient.

The fourth conclusion is that salespeople who are paid by

systems based on a fixed salary, identify more closely with

company objectives and therefore develop actions with a long

term vision, whereas in a system based on commission,

objectives are short-term and in particular concerned with

immediate sales. For this reason, it should be noted that

teams under greater fixed compensation are more effective

both financially and in terms of supervisor satisfaction.

Related to the implications for Spanish companies, the

results in this study point out the need to make an important

change with respect to the accomplishment of tasks related to

the evaluation and control of salespeople. So, previous studies

(e.g. Canales and Kuster, 2006) contrast the frequent use of

the results based systems to control and evaluate the

salespeople, instead of using more behavioral systems.Results show that these results based systems have no

positive effects on sales effectiveness and salesperson

performance. Therefore, companies and more especially

sales managers, must control and supervise sales results but

also, and even more so, behavioral aspects.

Our findings reinforce those underlined in other countries,

such us Canada, Australia, Austria or United Kingdom. This

study points out the role of field sales managers that

sometines is forgotten by SMEs.

The results of the present paper must be understood in the

context in which they have been produced. Any generalisation

of results is limited by the studys characteristics, in particular

by the sample used and the particular situation of the country

analyzed. At the same time, and because our study relies on

the subjective judgment of sales field managers perceptions,

the measurement of some concepts are subject to various

cognitive biases. Future studies should use external, and

perhaps more objective sources for judgment. Moreover, to

avoid residual effects of variance, it may be worthwhile

obtaining information on the concepts analysed from

salespeople and customers, to compare these results with

the field sales managers opinion. Additionally, other scales

for measuring the concepts could be incorporated

The interest of some of the results of this study do,

however, open new horizons of work, for example, the study

of the relationships between the concepts analyzed in specific

industries or activities. At the same time, analysis of other

concepts such as the relationship between gender, control

system, performance and effectiveness may also be of interest

to enterprises. It would also be useful to develop and contrast

a model which includes all these variables.

In this sense, and following the same methodology of Chan

(1998) or Naumann and Bennett (2000), it could be possible

to analyse salesperson performance and salesforceeffectiveness using multilevel models.

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(An Appendix follows on the next page.)





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Appendix. Statistical analysis of the items used

Table AI

Compensation and control Group Mean SD t Sig.

CO1 Regular review of salespeoples reports 1 7.54 1.87 14.765 0.000

2 5.98 2.25CO2 Attention paid to the duration of salespeoples trips 1 6.88 2.30 33.233 0.000

2 4.18 2.49

CO3 Close watch on salespeoples expenses 1 7.13 2.03 21.300 0.000

2 5.00 2.62

CO4 Active participation in in-service training of the salesperson 1 7.67 1.55 26.712 0.000

2 5.53 2.50

CO6 Discusses the evaluation of the outcome with the salespeople 1 7.88 1.58 28.684 0.000

2 5.67 2.48

CO9 Evaluates the salespersons professional development 1 7.13 2.33 20.182 0.000

2 4.85 2.82

Notes: Scale used from 1 Not at all to 10 To a large extent-Always; Group 1: n 48; Group 2: n 60

Table AII

Compensation and performance Group Mean SD t Sig.

PER1 They contribute a high market share to the company 1 4.81 1.24 5.229 0.024

2 4.27 1.22

PER2 They sell products with a high profit margin 1 4.65 1.25 3.516 0.064

2 4.18 1.30

PER3 They generate a high level of sales (in monetary units) 1 4.81 1.39 5.812 0.018

2 4.12 1.56

PER5 They perform profitable. long-lasting operations 1 4.67 1.27 6.611 0.012

2 3.98 1.44

PER6 They exceed their objectives throughout the year 1 4.67 1.08 11.368 0.001

2 3.82 1.45

Notes: Scale used from 1 Needs to improve to 7 Exceptional; Group 1: n 48; Group 2: n 60

Table AIII

Compensation and effectiveness Group Mean SD t Sig.

FE2 Sales turnover with respect to the teams objectives 1 3.88 0.95 21.360 0.000

2 2.97 1.06

FE4 Market share with respect to the teams objective 1 3.79 0.92 23.127 0.000

2 2.83 1.11

FE5 Profitability with respect to the major competitor 1 3.52 0.82 14.214 0.000

2 2.87 1.13

FE6 Profitability with respect to the teams objective 1 3.38 0.98 6.397 0.0132 2.87 1.08

SAT1 Average annual sales per salespersona 1 5.04 1.13 9.717 0.002

2 4.32 1.25

SAT2 New customers obtaineda 1 4.94 1.59 19.508 0.000

2 3.60 1.54

SAT3 Acceptable level of salesforce renewala 1 4.88 1.29 5.063 0.027

2 4.28 1.40

SAT4 Retention of existing customersa 1 5.46 1.09 12.223 0.001

2 4.68 1.18

Notes: Scale used from 1 Much worse to 5 Much better; aScale used from 1 Needs to improve to 7 Exceptional; Group 1: n 48; Group 2: n 60





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About the authors

Ines Kuster is Lecturer in Marketing in the Department ofMarketing in the School of Economics (University of Valencia).Her research attention has focused on strategic marketing areasand sales. She has published articles in diverse refereed journals(e.g. JQRM, EJIM, and relevant Spanish journals). She isauthor of one book (Relationship Selling), and book chapters

related to her investigation field. She has also presented papersat the European Marketing Conference and the Academy ofMarketing Conference. She collaborates with diverseenterprises, helping them in marketing areas (recruitingsalespeople, training sales managers, analysing commercialefforts,etc.). Ines Kuster is thecorrespondingauthor andcan becontacted at: [email protected]

Pedro Canales is Coordinator of Estema School of Tourism(University of Miguel Hernandez) and Associated Professorin the Department of Marketing in the School of Economics(University of Valencia). His research attention has focusedon strategic marketing areas and sales management. Hecollaborates with diverse enterprises in sales managementareas.

Executive summary and implications formanagers and executives

This summary has been provided to allow managers and executives

a rapid appreciation of the content of the article. Those with a

particular interest in the topic covered may then read the article intoto to take advantage of the more comprehensive description of theresearch undertaken and its results to get the full benefit of the

material present.

Do salespeople who receive a greater proportion of theircompensation as a fixed salary give better individualperformance than those who are paid by commission? It is aquestion companies dependent on a sales force continually

grapple with and seeking help from experimentation has not inthe past been conclusive, with academics providing opposingresults.

Consequently, howto reward salespeopleremainsa challenge.Weighting it on commission risks thesales person takinga short-term position, concentrating their mind on selling to existingcustomers rather than harder-to-reach new clients and havingtheirown aimsand objectives,rather thanthe companys, astheirpriority. Weighting it on a fixed salary risks taking away animpetus to earn more. These conflicting outcomes must also beconsidered along with how much control over a sales personsbehavior the company wishes to exert. Compensation forsalespeople is one of the most important issues in sales forcemanagement. In a relationship selling environment, onepractical concern for sales managers has been how best to

reward salespeople to achieve long-term and changingobjectives.

In Compensation and control sales policies, and salesperformance: the field sales managers points of view InesKuster Boluda and Pedro Canales Ronda analyze therelationship between the basic compensation system (salaryand commissions) andboth individualsales personperformanceandsalesorganizationeffectiveness.In a studybasedon SMEs inSpain and focusing on the perceptions of field sales managers,

support was found for the view that salespeople who receive a

greater proportion of compensation as a fixed salary give better

individual performancethan those whoare paid by commission.

However,it can alsobe saidthatwhena sales person isrewarded

by commission, he makes more effort.

What is certain is that the compensation system used for thesalespeople has significant effects on sales person performance

and sales organization effectiveness and is related to thecontrol system used by the company. This seems logical

because outcome control and consequently compensation by

commission systems require careful monitoring of the sales

figures achieved by the salesperson being evaluated.

Compensation based on a fixed salary is used when

behavior control is applied and compensation based on

com missions is used w hen outcome is controlled.

Compensation by fixed salary is related to control over

salespeople while compensation by a system of commission is

related to motivation. Thus, a combination of the security of a

fixed salary and motivation for the variable part of it makes

the salesperson fully develop his abilities in the job, obtaining

better outcome and making the company more effective. For

this reason, in practice most firms use mixed compensation

systems with a partly fixed, partly variable salary.Ifa company wantsto introducea behaviorcontrolsystem, the

tasks to be performed by the salespeople must first be defined,

andasthesalespeoplecannotdecidewhatactionstoperform,the

risk of such actions must lie with the company. Given that thecompany will define the actions so that they facilitate the

achievement of its objectives, this system makes teams moreefficient.However,usingcompensationsystemsbasedonafixed

salary does not mean thatoutcome control should be forgotten.

If a company is going to introduce a compensation system

based on commission on sales, it should concentrate on

controlling the outcome rather than behavior, since the

salespeople assume the risk of their work and therefore must

be able to decide which actions they consider are most

appropriate for achieving the objectives. Furthermore, given

that compensation will be based on sales, outcome must be

controlled since it is the basis for the compensation.

Com pensation based on com mission w il l only be

appropriate when the company cannot determine a priori

the best course of action for their salespeople to achieve the

objectives being contemplated since the sales person will focus

his objectives to benefit himself rather than the company and

will therefore be less efficient.

Salespeople who are paid by systems based on a fixed salary

identify more closely with company objectives and therefore

develop actions with a long-term vision, whereas in a system

basedoncommission,objectivesareshort-termandinparticular

concerned with immediate sales. For this reason, it should be

noted that teams under greater fixed compensation are more

effective both financially and in terms of supervisor satisfaction.Companies, and more especially sales managers, must

control and supervise sales results but also, and even more so,behavioral aspects. The role of field sales managers is

sometimes forgotten by SMEs.

(A precis of the article Compensation and control sales policies,

and sales performance: the field sales managers points of view.

Supplied by Marketing Consultants for Emerald.)





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