2 Great Compensation Plans Calibrate with firm’s overall profit objectivesMotivate to meet tactical sales and strategic objectivesTie to measurable criteria representingtactical/ strategic objectivesInclude fixed and variable elementsKeep the plan simple yet thoroughReward securing, building, maintaining long-term relationshipswith profitable customersConsider salespeople a mission-critical assetReward salesperson efforts according to worth (contribution)Clearly differentiate payouts for top, average, andinadequate performersDistinguish between performing tasks and achieving resultsAvoid direct competition between salespeopleReduce role conflict, ambiguity, and stressGenerally don’t change plan tooquicklyWhen the time is right to change plan quickly, do soPermit salespeople with above-adequate performanceto seek desired compensation potential w/out penaltyAcid test is how the plan impacts the customer marketplaceSource: HR Chally Group (2005), Principles of Sales Compensation. Dayton, OH: HR Chally Group.
3 Discuss advantages/limitations of straight salary, straight commission, combination plans Explain how/why a bonus might be used as an incentiveUnderstand effective use of sales contests and their potential pitfallsIdentify key nonfinancial rewards, why they might be importantRecognize key issues surrounding expense accountsDiscuss making decisions on mix and level of compensation
4 Key Compensation Questions Which compensation method is most appropriate for motivating specific activities in specific situations?How much of the total compensation should be earned through incentives?What is the best mix of financial and nonfinancial compensation and incentives?
5 Key DefinitionsSalary – a fixed sum of money paid at regular intervalsIncentive PaymentsCommission – a payment based on short-term results, usually a dollar or unit sales volumeBonus – a payment made at management’s discretion for achieving or surpassing some set level of performanceQuota - often the minimum requirement for a salesperson to earn a bonusSales contests – encourage extra effort aimed at specific short-term objectivesBenefits - medical and disability insurance, life insurance, retirement planNon-financial incentives - opportunities for promotion or various types of recognition for performance
6 11.1Components andobjectives of financialcompensation plans
10 Combination PlansOffer a base salary plus some proportion of incentive payMost popular form of compensationWell-suited for relationship selling by compensating for nonselling activities while providing incentives to motivate sales
11 Design Questions for Combination Plans Appropriate size of incentive relative to base salary?Should ceiling be imposed on incentive earnings?When should the sale be credited?Should team incentives be used? How?How often should incentive payments be made?
12 Sales ContestsShort-term incentive programs to accomplish specific objectivesWinners receive prizes, recognition, sense of accomplishmentSuccessful contests require:Clearly defined, specific objectivesAn exciting themeReasonable probability of rewards for allAttractive rewardsPromotion and follow-through
13 Criticisms of Sales Contests May not produce lasting improvementsSalespeople may borrow sales from another period to increase sales during contest periodPoorly administered contests can hurt cohesiveness and morale
14 Nonfinancial RewardsRecognition makes peers and superiors aware of outstanding performanceEffective recognition programs:Offer everyone a reasonable chance of winningRecognize best performers across several dimensions
15 11.3Guidelines for effective formal recognition programs
16 Expense AccountsOften, field selling expenses may be $25K or more per salespersonTypesDirect reimbursement – of all “allowable and reasonable” expensesLimited reimbursement – sets expense limits by-item or provides predetermined lump sumNo reimbursement – salespeople covers all expenses; usually combined with higher total compensation
17 11.3 Dumb-Down Pay Programs Eliminate nonselling activitiesNo more than three performance measuresExclude inappropriate measuresHold supervisors accountableTighten sales credit rulesSource: David Cichelli, “Dumb Down Your Pay Programs,” Sales & Marketing Management, September 2003, p. 88. joh29877_ch11_ indd 360 1/4/08 10:49:25 AM
18 11.4 Rewarding A While Hoping for B? Straight commission may work for transactional selling, but…Relationship selling is more complex; requiresOperating within a teamSecuring, building, long-term relationship with profitable customersOrganizations must reward these additional behaviorsSource: Kerr’s original article was updated and republished as follows—Steven Kerr, “On the Folly of Rewarding A, while Hoping for B,” Academy of Management Executive, 9:1 (1995), pp. 7–14.
19 Assessing Relationship Selling Objectives How are salespeople spending time?Do most time-intensive tasks match organization’s goals?If not, may be time to adjust quotas to change motivations
20 11.5 Your Quota System Isn’t Working If… Nobody makes a goalThere are no over-achieversOnly superstars make goalSource: Julia Chang, “Numbers Crunching,” Sales & Marketing Management, February 2003, p. 49.
21 Sales activities and performance outcomes that might be encouraged by compensation and incentive programs11.4