Presentation on theme: "Chapter 11 Compensating the Sales Force"— Presentation transcript:
1 Chapter 11 Compensating the Sales Force Sales Management: A Global PerspectiveEarl D. HoneycuttJohn B. FordAntonis C. Simintiras
2 IntroductionCompensation in the global market is an extremely important managerial areaThis is because the compensation plan:Helps attract potential salespersonsImpacts a salesperson’s motivationIs a determinant of status and valueDetermines lifestyle and purchasing power
3 In Global MarketCompensation package is complex and affected by multiple forces:A balance between company policies and country-specific elementsTotal compensation package includes financialSalary, commission, bonus, stock options, benefitsand non-financial incentivesAwards, recognition, vacation, and promotion
4 Compensation PlansHard to compare compensation plans because of their differencesLower salary, but higher deferred componentsCannot 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 managementCompensation may be changed to meet firm goals
5 Three Types of Compensation Plans Straight SalaryStraight CommissionCombination Plan
6 Straight SalarySalesperson paid a set amount of money based upon hours or days workedOften adopted when salesperson must devote significant amounts of time to other dutiesMarket research, customer service, administrationSimple to administer by sales managerBut, no direct link between performance and reward!More commonly used in Europe and may be difficult to change by global sales managers
7 Straight CommissionAdopted by performance-oriented firms that pay salesperson for their achievementsEach person is paid a percentage of their total salesEasy to evaluate performancePlans encompass an element of insecurityNot believed acceptable in some cultures, like EUSome evidence of acceptance in JapanCan 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 firmsMay appear in many forms:Salary, commission, individual and group bonusesBasic security bestowed by set salaryMotivation introduced by commission/bonusCombination 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 QuestionsWhat 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 ContestsSales contests are short-term incentive programs implemented to motivate salespersons to achieve specific goals or activitiesFor sales contests to be successful:Objectives must be specific and clearly definedContest theme must be exciting and clearly communicatedEach salespersons must believe they can winAwards must be attractive to participantsContest must be promoted and managed properly
12 Sales Contest Elements Contest ObjectivesTo increase total and product sales most commonSales force must be given sufficient timeAll contest information and rules must be clearThemeContests receive a theme to create excitementChance of winningCompete against self, others, or as a team?In U.S. salesperson has about a 40% chance of winning
13 Types of RewardsSales contests can offer many types of reward in the form of:Cash, prizes, or travelPerceived value very important as it must be of sufficient value to motivate additional effortPromotion of contest importantLaunched as a special event with handoutsLarge scorecards to communicate progressNewsletter articles or interim prizes can keep motivation up
14 Sales Contest Concerns A number of concerns have been raised about sales contestsWhen not properly designed contests take a lot of managerial time to administerImproper contests can actually de-motivateDo 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 QuestionsHow 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 satisfiedAbility to growRecognition programsSalesperson of the year, President’s ClubOpportunity to travelEducational assistance
17 Sales Expense Plans Linked to salary in some ways Globally, firm may pay salesperson’s expenses to live overseas that include familyExpatriate expenses are significantExpense plans includeUnlimitedPer diemLimited expense plan
18 Unlimited Expense Plan All legitimate expenses are reimbursedPlan has a number of advantagesCommunicates trust to the sales forceSales manager can focus on more important issuesSalesperson cannot complain that resources not available to make saleSales force must be given guidance and expenses must still be monitored to insure sound judgmentReimbursed expenses vary by country – e.g. entertainment and alcohol
19 Per Diem Expense PlanThe salesperson is given a set amount of money for each day s/he is in the fieldFor example, US$250 per dayBudget can be set by multiplying rate times total days sales force expected to travelSingle rate unlikely to work in all locales due to varying costsSales manager must adjust per diem rates regularly as prices expand or contract
20 Limited Expense PlanThe firm sets a maximum daily amount paid for each category of expenseThat is, US$125 for lodging, $50 for meals, $30 for auto rental, and $20 for miscellaneousLimits firm’s upper travel expense limitMust be updated and will vary by locationWhen actual costs exceed plan, salesperson may try to save in some areas to meet expenses in otherSalesperson’s attention may be diverted from client
21 Discussion QuestionsIs 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 SummaryCompensation plan helps attract and maintain quality sales forceCompensation is culturally influencedSales contests can provide short term motivationMust be properly planned and managedExpense plans importantCover legitimate expenses, but always remember that Sales – Expenses = ProfitsRules for sales force compensation, contests, and expenses must be simple and unambiguous!