1. Salesperson Compensation and Incentives13
Salesperson Compensation and Incentives

2. 4/22/2017
Learning Objectives
Understand the effective use of sales contests, as well as the potential pitfalls of their use
Identify key nonfinancial rewards and how and why they might be important
Recognize key issues surrounding expense accounts in relationship selling

3. 4/22/2017
Learning Objectives
Describe how to make compensation and incentive programs work
Discuss making decisions on the mix and level of compensation

4. Three 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 Definitions
Salary – a fixed sum of money paid at regular intervals
Commission – a payment based on short- term results, usually a dollar or unit sales volume
Bonus – a payment made at management’s discretion for achieving or surpassing some set level of performance

6. Compensation Methods for Salespeople
13.3
Compensation Methods for Salespeople
Compensation Method
Especially Useful For
Advantages
Disadvantages
Straight Salary
New sales reps
New sales territories
Many required nonselling activities
Maximum security
Control over reps
Easy to administer
Predictable expenses
No incentive
Requires close supervision
Selling expenses remain same during sales declines

7. Compensation Methods for Salespeople
13.3
Compensation Methods for Salespeople
Compensation Method
Especially Useful For
Advantages
Disadvantages
Straight Commission
Highly aggressive selling
Minimal required nonselling tasks
When company can’t closely control sales force
Maximum incentive
Managers can encourage sales of certain items
Selling expenses relate directly to selling resources
Little security
Little control over reps
Reps may provide inadequate service to smaller accounts
Selling costs less predictable

8. Compensation Methods for Salespeople
13.3
Compensation Methods for Salespeople
Compensation Method
Especially Useful For
Advantages
Disadvantages
Combination
Similar sales potential across territories
When company wants to offer incentive but maintain some control
Some security
Some incentive
Selling expenses vary with revenue
Manager has some control over nonselling activities
Selling expenses are less predictable
May be difficult to administer

9. Combination Plans
Offer a base salary plus some proportion of incentive pay
Most popular form of compensation
Well-suited for relationship selling by compensating for nonselling activities while providing incentives to motivate sales

10. Design Questions for Combination Plans
What is the appropriate size of the incentive relative to the base salary?
Should a ceiling be imposed on incentive earnings?
When should the salesperson be credited with a sale?

11. Design Questions for Combination Plans
Should team incentives be used? If so, how should they be allocated among team members?
How often should the salesperson receive incentive payments?

12. Sales Contests
Short-term incentive programs designed to motivate to accomplish specific sales objectives
Contest winners receive prizes, recognition, and a sense of accomplishment
Successful contests require:
Clearly defined, specific objectives
An exciting theme
Reasonable probability of rewards for all
Attractive rewards
Promotion and follow-through

13. Criticisms of Sales Contests
May not produce lasting improvements
Salespeople may borrow sales from another period to increase sales during the contest period
Poorly administered contests can hurt cohesiveness and morale

14. Nonfinancial Rewards
Recognition is an attractive reward because it makes a salesperson’s peers and superiors aware of outstanding performance
Effective recognition programs:
Offer everyone a reasonable chance of winning
Recognize the best performers across several dimensions

15. Expense Account Types
Direct reimbursement – direct and unlimited reimbursement of all “allowable and reasonable” expenses
Limited reimbursement – either sets expense limits by-item or provides predetermined lump sum
No reimbursement – requires salespeople to cover all expenses; usually combined with higher total financial compensation plan

16. Successful compensation plans must clearly link performance to rewards
13.2
Simplify Your Pay Programs
Successful compensation plans must clearly link performance to rewards
To fix a poor compensation plan:
Clean up the jobs
Three’s the magic number
Exclude inappropriate measures
Hold supervisors accountable
Tighten sales credit rules
Source: David Cichelli, “Dumb Down Your Pay Programs,” Sales & Marketing Management, September 2003, p.88.

17. Three clues your quota system ISN’T working: 1. Nobody makes goal
13.4
Is Your Quota System Working?
Three clues your quota system ISN’T working:
1. Nobody makes goal
2. There are no overachievers
3. Only superstars make goal
Source: Julia Chang, “Numbers Crunching,” Sales and Marketing Management, February 2003, p. 49.