CHAPTER 13 COMPENSATION FOR HIGH PERFORMANCE

I. II.

COMPENSATION AT INGERSOLL-RAND COMPENSATION IS MORE THAN MONEY A. Any type of organization can reward sales performance in three fundamental and interrelated ways: 1. 2. 3. B. Direct financial rewards Career advancement Nonfinancial compensation

Sales Reward System a system of measuring and rewarding salespeople's performance.

C.

Purposes Of Compensation 1. 2. 3. 4. 5. 6. Connect individual with organization Influence work behavior Organizational choice Influence satisfaction Feedback Reinforcement

III.

DESIGNING A COMPENSATION PROGRAM A. Determine Sales Force And Compensation Objectives 1. Formal Compensation Process the process of establishing a formal written plan for the compensation and rewarding of salespeople. B. Determine Major Compensation Factors

1.

Wage level is the amount of compensation established for salespeople in comparison with the industry average.

2.

Wage structure is the pay differential among different sales levels within an organization.

3. 4. C.

Individual wage Administration procedure

Implement Long- And Short-Range Compensation Programs 1. Communicate compensation policy a. Compensation Message the communication to salespeople about pay and management's expectations.

D. E. F. IV. V.

Relate Rewards To Performance Measurement Of Performance Appraisal And Recycling

PERFORMANCE-BASED PAY: PREREQUISITES AND OBSTACLES TYPES PF COMPENSATION PLANS A. Straight Salary 1. Straight Salary Plan a way of compensating employees for their work in which they are paid a specific dollar amount at regular intervals. 2. Advantages to the salesperson a. b. c. 3. Secure Simple and economical for management Less resistance to reassignment of accounts and personnel transfers

Disadvantages of the straight salary plan a. Lack of direct monetary incentive

b. c. d. e. 4.

Salary adjustments not always made based on specific performance Can create a lowering of work norms within the sales group Not distributed in proportion to sales made Salespeople may tend to emphasize products that are easy to sell.

When to use straight salary plans a. Best for jobs in which a high percentage of the workday is devoted to nonselling activities and for management which finds it cannot effectively evaluate performance.

B.

Straight Commission Plans 1. Straight Commission Plan a way of compensating employees for their work in which they are paid entirely on the basis of what they sell. 2. Drawing Accounts are a type of compensation plan that combines the incentive of a straight commission plan with the security of a fixed income by enabling the salesperson to borrow against future commissions. 3. Advantages of straight commission plans a. Many sales managers believe that the commission plan provides maximum incentive for their salespeople. b. Salespeople under this plan often feel that they are in business for themselves. c. Simple to administer and selling costs are in proportion to sales made, with allowance for a constant or average cost ratio. d. 4. The company pays the salesperson at the time of sale.

Disadvantages of the commission plan a. Uncertainty and Insecurity

b. c. d.

Little loyalty developed toward the company More reluctant to split or change territories The cost of sales may be somewhat greater with a straight commission pan, even though greater sales volume is produced.

e. f.

The firm using the plan must establish a good evaluation system. Today's complex distribution channels and exchange processes can make the proper allocation of commissions to salespeople difficult.

5.

When to use straight commission plans a. b. c. d. e. f. g. h. i. Low barriers to entry into the job. Limited corporate cash resources Small entrant into an emerging market or market-segment High risk reward sales force culture Undefined market opportunity or customer base Inability to set quotas or other performance criteria Volume-oriented business strategy Where little nonselling, missionary work is involved. The company cannot afford to pay a salary and wants selling costs to be directly related to sales j. The company uses independent contractors and part-timers

C.

Combination Salary Plans 1. Combination Salary Plan a type of compensation plan in which a proportion of the pay is guaranteed and the rest is incentive to pay. 2. What is the split?

a.

The salary should constitute a living wage and the incentive should allow the top performers to earn somewhere between 25 50 percent of their salary in incentives.

3.

How to calculate a. Set an upper limit

b. Consider profitable products 4. Who should participate? a. Split credit is a situation that results when more than one person or department is involved in a sale and all parties receive a portion of the incentive to pay. b. 5. 6. Support people

Salary administration When to pay a. Salary and commission b. Bonus: individual or group

7. Sales contests are special sales programs offering salespeople incentives to achieve short-term work goals. 8. When to use a combination salary plan a. b. c. VI. Motivate the sales force Attract and hold good people Can direct the sales force efforts in a profitable direction

THE MANAGER'S COMPENSATION A. Managers compensations should be based on some combination or weighting of two factors:

1. 2.

Total district performance The performance of individual members of the salesforce as measured by the number who exceed the quota, the total amount of incentives earned, or some salary yardstick.

VII.

SALES FORCE EXPENSES A. Expense Plans a system that reimburses salespeople for their food, lodging, travel, entertainment, and auto expenses to allow them to maintain a good "business" standard of living. B. Types Of Expense Plans 1. 2. 3. Company pays all expenses Salesperson pays all expenses Partial payment of expenses

VIII.

FRINGE BENEFITS A. Five basic classifications of salespeople's benefits and services follow: 1. Benefits that are required legally, such as social security, unemployment compensation, and worker's compensation. 2. 3. 4. 5. Pension and retirement programs. Nonworking time such as vacations and holidays. Insurance such as life, health and accident. Miscellaneous services such as education, recreation, and personal and financial counseling.

IX. X.

THE TOTAL COMPENSATION PACKAGE FACTORS TO CONSIDER WHEN DEVELOPING A NEW PLAN A. Information To Collect

1. 2. 3. XI.

Competitors' plans Product profitability Sales force activities

DEVELOPING AND INTRODUCING A NEW PLAN A. B. C. Pretest The Plan Sell The Plan To The Sales Force Constantly Evaluate The Plan

XII.

THE BOTTOM LINE