Chapter 11Compensating the Sales Force

Sales Management: A Global Perspective

Earl D. HoneycuttJohn B. Ford

Antonis C. Simintiras

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

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

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

Three Types of Compensation Plans

• Straight Salary

• Straight Commission

• Combination Plan

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

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

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

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?

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?

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

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

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

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?

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?

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

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

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

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

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

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

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!