s.f. compensation
TRANSCRIPT
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COMPENSATING THE SALES FORCE
Sales Management: A Global
Perspective
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INTRODUCTION
Compensation in the global market is anextremely important managerial area
This is because the compensation plan:Helps attract potential salespersons
Impacts a salespersons motivation
Is a determinant of status and value
Determines lifestyle and purchasing power
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IN GLOBAL MARKET
Compensation package is complex andaffected by multiple forces:A balance between company policies and
country-specific elementsTotal compensation package includes financial
Salary, commission, bonus, stock options, benefits
and non-financial incentivesAwards, recognition, vacation, and promotion
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COMPENSATION PLANS
Hard to compare compensation plansbecause of their differences Lower salary, but higher deferred
components Cannot simply transfer a compensation plan
from one culture to anotherWhat works in one culture will not work in
another! Compensation should motivate sales force to
accomplish goals set by management Compensation may be changed to meet firm goals
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THREE TYPES OF COMPENSATION PLANS
Straight SalaryStraight Commission
Combination Plan
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STRAIGHT SALARY
Salesperson paid a set amount of moneybased upon hours or days worked Often adopted when salesperson must
devote significant amounts of time to otherdutiesMarket research, customer service,
administration
Simple to administer by sales manager
But, no direct link between performance andreward!More commonly used in Europe and may be
difficult to change by global sales managers
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STRAIGHT COMMISSION
Adopted by performance-oriented firms thatpay salesperson for their achievements Each person is paid a percentage of their total sales
Easy to evaluate performance Plans encompass an element of insecurity
Not believed acceptable in some cultures, like EU
Some evidence of acceptance in Japan
Can lead salesperson to shirk duties or pressure customers to
buy
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COMBINATION PAY PLAN
The combination plan is the most popularEmployed by more than 80% of US firms
May appear in many forms:
Salary, commission, individual and group bonusesBasic security bestowed by set salary
Motivation introduced by commission/bonus
Combination plans more time consuming forsales managers to oversee
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ETHICAL COMPENSATION ISSUES
Major dilemma hire the best salesperson forthe lowest possible salary. Other dilemmasinclude:
Pay at, below or above market salaries?Setting a cap on total pay?
Assigning lucrative sales territories?
Team vs. individual incentives?Frequency of paying commission?
Pay discrimination?
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DISCUSSION QUESTIONS
What are the advantages of each payplan? The disadvantages?
Which pay plan would work best for asoftware firm that is a market leader?
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SALES CONTESTS
Sales contests are short-term incentive programsimplemented to motivate salespersons to achievespecific goals or activities
For sales contests to be successful: Objectives must be specific and clearly defined
Contest theme must be exciting and clearlycommunicated
Each salespersons must believe they can win
Awards must be attractive to participants
Contest must be promoted and managed properly
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SALES CONTEST ELEMENTS
Contest Objectives
To increase total and product sales most common
Sales force must be given sufficient time
All contest information and rules must be clear Theme
Contests receive a theme to create excitement
Chance of winning Compete against self, others, or as a team?
In U.S. salesperson has about a 40% chance of winning
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TYPES OF REWARDS
Sales contests can offer many types of reward inthe form of: Cash, prizes, or travel
Perceived value very important as it must be of sufficientvalue to motivate additional effort
Promotion of contest important Launched as a special event with handouts
Large scorecards to communicate progress
Newsletter articles or interim prizes can keep motivationup
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SALES CONTEST CONCERNS
A number of concerns have been raisedabout sales contestsWhen not properly designed contests take a lot
of managerial time to administer Improper contests can actually de-motivate
Do sales contests generate additional sales?
Should sales force be paid twice for doing job?
If contests are for short-term, then why have anever-ending sales contest?
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DISCUSSION QUESTIONS
How might a sales contest motivate salespersonnel to greater efforts?
Does a sales contest take into considerationthe needs of the buyer?
Is it possible sales contests have become apart of the compensation system? If so,
what does this tell us?
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NON-FINANCIAL INCENTIVES
Human needs require approaches other thancompensation to remain satisfied
Ability to grow
Recognition programs
Salesperson of the year, Presidents Club
Opportunity to travel
Educational assistance
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SALES EXPENSE PLANS
Linked to salary in some waysGlobally, firm may pay salespersons expenses
to live overseas that include family
Expatriate expenses are significant Expense plans include
Unlimited
Per diem
Limited expense plan
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UNLIMITED EXPENSE PLAN
All legitimate expenses are reimbursed
Plan has a number of advantages Communicates trust to the sales force
Sales manager can focus on more important issues Salesperson cannot complain that resources not
available to make sale
Sales force must be given guidance and expensesmust still be monitored to insure sound judgment Reimbursed expenses vary by country e.g.
entertainment and alcohol
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PER DIEM EXPENSE PLAN
The salesperson is given a set amount ofmoney for each day s/he is in the field
For example, US$250 per day
Budget can be set by multiplying rate times total dayssales force expected to travel
Single rate unlikely to work in all locales due tovarying costs
Sales manager must adjust per diem rates regularlyas prices expand or contract
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LIMITED EXPENSE PLAN
The firm sets a maximum daily amount paidfor each category of expenseThat is, US$125 for lodging, $50 for meals, $30
for auto rental, and $20 for miscellaneousLimits firms upper travel expense limit
Must be updated and will vary by location
When actual costs exceed plan, salesperson may try
to save in some areas to meet expenses in otherSalespersons attention may be diverted from client
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DISCUSSION QUESTIONS
Is there a connection between the ethicalpractices of sales managers, regarding paymatters, and the ethical behavior of
salespersons?What is the purpose of expense plans?
Compare and contrast the advantages and
disadvantages of the three expense planscovered in this chapter
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CHAPTER SUMMARY
Compensation plan helps attract and maintainquality sales force Compensation is culturally influenced
Sales contests can provide short term motivation Must be properly planned and managed
Expense plans important Cover legitimate expenses, but always remember that
Sales Expenses = Profits
Rules for sales force compensation, contests, andexpenses must be simple and unambiguous!