1. Chapter 11 Compensating the Sales Force
Sales Management: A Global Perspective
Earl D. Honeycutt
John B. Ford
Antonis C. Simintiras

2. Introduction
Compensation in the global market is an extremely important managerial area
This is because the compensation plan:
Helps attract potential salespersons
Impacts a salesperson’s motivation
Is a determinant of status and value
Determines lifestyle and purchasing power

3. In Global Market
Compensation package is complex and affected by multiple forces:
A balance between company policies and country-specific elements
Total compensation package includes financial
Salary, commission, bonus, stock options, benefits
and non-financial incentives
Awards, recognition, vacation, and promotion

4. Compensation Plans
Hard to compare compensation plans because of their differences
Lower salary, but higher deferred components
Cannot simply transfer a compensation plan from one culture to another
What 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

5. Three Types of Compensation Plans
Straight Salary
Straight Commission
Combination Plan

6. Straight Salary
Salesperson paid a set amount of money based upon hours or days worked
Often adopted when salesperson must devote significant amounts of time to other duties
Market research, customer service, administration
Simple to administer by sales manager
But, no direct link between performance and reward!
More commonly used in Europe and may be difficult to change by global sales managers

7. Straight Commission
Adopted by performance-oriented firms that pay 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

8. Combination Pay Plan The combination plan is the most popular
Employed by more than 80% of US firms
May appear in many forms:
Salary, commission, individual and group bonuses
Basic security bestowed by set salary
Motivation introduced by commission/bonus
Combination plans more time consuming for sales managers to oversee

9. Ethical Compensation Issues
Major dilemma – hire the best salesperson for the lowest possible salary. Other dilemmas include:
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?

10. Discussion Questions
What are the advantages of each pay plan? The disadvantages?
Which pay plan would work best for a software firm that is a market leader?

11. Sales Contests
Sales contests are short-term incentive programs implemented to motivate salespersons to achieve specific goals or activities
For sales contests to be successful:
Objectives must be specific and clearly defined
Contest theme must be exciting and clearly communicated
Each salespersons must believe they can win
Awards must be attractive to participants
Contest must be promoted and managed properly

12. 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

13. Types of Rewards
Sales contests can offer many types of reward in the form of:
Cash, prizes, or travel
Perceived value very important as it must be of sufficient value 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 motivation up

14. Sales Contest Concerns
A number of concerns have been raised about sales contests
When 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 a “never-ending” sales contest?

15. Discussion Questions
How might a sales contest motivate sales personnel to greater efforts?
Does a sales contest take into consideration the needs of the buyer?
Is it possible sales contests have become a part of the compensation system? If so, what does this tell us?

16. Non-Financial Incentives
Human needs require approaches other than compensation to remain satisfied
Ability to grow
Recognition programs
Salesperson of the year, President’s Club
Opportunity to travel
Educational assistance

17. Sales Expense Plans Linked to salary in some ways
Globally, firm may pay salesperson’s expenses to live overseas that include family
Expatriate expenses are significant
Expense plans include
Unlimited
Per diem
Limited expense plan

18. 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 expenses must still be monitored to insure sound judgment
Reimbursed expenses vary by country – e.g. entertainment and alcohol

19. Per Diem Expense Plan
The salesperson is given a set amount of money for each day s/he is in the field
For example, US$250 per day
Budget can be set by multiplying rate times total days sales force expected to travel
Single rate unlikely to work in all locales due to varying costs
Sales manager must adjust per diem rates regularly as prices expand or contract

20. Limited Expense Plan
The firm sets a maximum daily amount paid for each category of expense
That is, US$125 for lodging, $50 for meals, $30 for auto rental, and $20 for miscellaneous
Limits firm’s 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 other
Salesperson’s attention may be diverted from client

21. Discussion Questions
Is there a connection between the ethical practices of sales managers, regarding pay matters, and the ethical behavior of salespersons?
What is the purpose of expense plans? Compare and contrast the advantages and disadvantages of the three expense plans covered in this chapter

22. Chapter Summary
Compensation plan helps attract and maintain quality 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, and expenses must be simple and unambiguous!