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Compensation and control sales policies, and sales performance: the eld sales managers points of view

ster and Pedro Canales Ines Ku


Departamento CIM, Facultad de Economa, Universidad de Valencia, Valencia, Spain
Abstract Purpose The purpose of this paper is to analyse the relationship among the compensation system (xed or commission) applied to salespeople, the system by which they are controlled, and the effects of both on individual performance and sales organization effectiveness. Previous research has been extended in a different country/context, and from the eld sales managers points of view. Design/methodology/approach First, a cluster analysis was used to obtain a set of groups of salespeople characterized by their main compensation system (salary and/or commission). Also, ANOVA is used to analyze the signicance of the differences due to the different compensation system. Findings The empirical data reect the results of research involving 108 eld sales managers and show that the compensation system used for the salespeople has signicant effects on individual salesperson performance and sales organization effectiveness and is related to the control system used by the company. Companies with a compensation system based on a xed salary use behavior control more than companies with a compensation system based on commission; salespeople who receive a greater proportion of compensation as a xed salary give better individual performance than those who are paid by commission; salespeople who receive a greater proportion of their pay as a xed salary are more effective than those paid largely by commission. Results do not show relevant differences among countries. Research limitations/implications Any generalisation of results is limited by the characteristics of this study, in particular by the sample used and the particular situation of the country analysed (Spain). At the same time, and because the study relies on the subjective judgment of sales eld managers perceptions, the measurement of some concepts is subject to various cognitive biases. Practical implications Compensation for salespeople is one of the most important issues in saleforce management as it has a signicant effect on motivation, which is critical, given the conditions of their working environment. Originality/value This paper analyzes the eld sales managers points of view and not that of the salesperson or the sales team. This provides a closer perspective because eld sales managers operate between the salesperson and sales manager. This paper presents a framework based on Baldauf et al.s and Piercy et al.s previous research, with two main contributions. The rst contribution is the proposed direct analysis of the relationships between various antecedents of effectiveness. The second contribution is the consideration of two dimensions of the effectiveness construct: nancial efcacy and eld sales manager satisfaction. Keywords Sales force, Compensation, Sales performance Paper type Research paper

An executive summary for managers and executive readers can be found at the end of this article.

Introduction
Salespeople are one of the major contributors to a rms survival by virtue of their role as nexus between the rm and its customers (Simintras et al., 1996). Salespeoples traditional function, a duty mainly to sell, is being reoriented towards achieving longer term objectives on the basis of relationship marketing (Pullins, 2001; Kuster, 2002). Consultive sellers add value to the buyer-seller retionship, with the goal of increasing buyer dependence on the salesperson and the
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companys product (Pelham, 2006). The actions and behaviors of salespeople will affect the relationships with customers and, even more, the performance of the rm (Kuster and Canales, 2008). So, in this context of sales, control is particularly important and can be dened as the tasks related to directing, evaluating and compensating salespeople (Anderson and Oliver, 1987). Traditionally control can range between two extremes: outcome control and behavior control (Marshall and Mowen, 1993; Canales and Toran, 1998; Baldauf et al., 2001a, b; 2002; Kuster and Roman, 2006). The rst one is more objective, and is related to the number of sales and sales costs. The second, behavior control, is both objective and subjective, and is based on supervisors perceptions of their saleforce. Which type of control is applied depends, among other aspects, on how easy it is to observe the outcome obtained by the salespeople, the ability to dene the way
Received: April 2009 Revised: September 2009 Accepted: February 2010

Journal of Business & Industrial Marketing 26/4 (2011) 273 285 q Emerald Group Publishing Limited [ISSN 0885-8624] [DOI 10.1108/08858621111127018]

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Compensation and control sales policies, and sales performance Ines Kuster and Pedro Canales

Journal of Business & Industrial Marketing Volume 26 Number 4 2011 273 285

salespeople operate, the skills they need to perform their job correctly and the uncertain environment in which they have to operate. Thus, the compensation that a salesperson receives will condition his/her behavior and may necessarily lead to a certain outcome. Although all we know there are more aspects that can motivate salespeople, according to Darmon (1987) ` and Darmon and Rouzies(2002), money or an equivalent element, is a main motivational tool and can be used to control salespeople (Coughlan and Narasimhan, 1992; Cooke, 1999). In a relationship selling environment, one practical concern for sales managers has been how to best remunerate salespeople to achieve long-term and changing objectives (Schultz and Good, 2000; Pullins, 2001). Several studies have demonstrated the effects of compensation systems on salesperson and customer behavior. For example, Sharma and Sarel (1995) provide evidence that compensation systems based on customer satisfaction increase salespeoples customer service response compared with salespeople whose incentives are based on turnover. The authors state that one of the most important issues in compensation is determining the appropriate proportion of salary versus commission. On similar lines, Pullins (2001) states that managers must solve this debate between salary and commission; and also points out it could be interesting to analyse how salary and commission structures impact sales strategies. Schultz and Good (2000) conrm that a conducive environment for encouraging salespeople to construct long-term customer relationships encourages long-term compensation structures. According to Jobber and Lancaster (2003), sales managers should consider carefully the compensation plan for their salespeople because the decision has important consequences. In this context, the main objective of the present paper is to analyse the relationship between the basic compensation system (salary and commissions) and both individual salesperson performance and sales organization effectiveness. So, we dene the concepts and then proceed to analyse the relationships between them. Later, an empirical research with eld sales managers was carried out with a methodology similar to that used by Cravens et al. (1992). Many companies have struggled for years to discover just the right formula or approach for compensating salespeople (Caruth and Handlogten-Caruth, 2006). In this sense, the eld sales managers were divided in two groups based on the compensation structure (salary- or commission-based). The nal objective was to detect possible differences between both groups in terms of control type, salesperson performance, and salespeople effectiveness. Since our unit of analysis was the eld sales unit, our target respondents were the eld sales managers. This study followed the procedure used in previous studies such as those by Cravens et al. (1992), Barker (1997), Piercy et al. (1997), Baldauf et al. (2001a 2002), and Piercy et al. (2004), among others. The main objective of this exploratory study is to analyse the effects of compensation structure and salespeople control on salesperson performance and business effectiveness. In this sense, three main objectives were established. First, to examine the relationship between compensation system (xed or variable) and control system (behavior or outcome). Second, to examine the relationship between compensation system and salesperson performance. And thirdly, to examine the relationship between compensation 274

and salespeople effectiveness. These objectives gave rise to two hypotheses and one research question. This paper presents a framework based on Baldauf et al. (2001a, 2002)) and Piercy et al.s (2004) previous research, with three main contributions. Baldauf et al. (2001b, 2002) provide strong support for positive relationships between behavior-based control and salesperson characteristics, salesperson outcome performance, and sales organization effectiveness. Piercy et al. (2004) show that management control is a relevant predictor of performance and effectiveness and, surprisingly, incentive pay has no effect on salesperson performance. Our rst contribution is the proposed direct analysis of the relationships between various antecedents of effectiveness and effectiveness. The second contribution is the consideration of two dimensions of the effectiveness construct: nancial efcacy and eld sales manager satisfaction. Finally, the third contribution focuses on the unit of analysis. So the eld sales managers have been considered instead of the salespeople or the sales managers. According to Baldauf et al. (2001b), eld sales managers are closest to the salespeople than other sales managers staff; they play a critical role in the success of sales teams and sales teams performance (Lyons, 2006). In this sense, diverse interviews were carried out with diverse sales eld mangers from diverse sectors and industries. In the next section, we review the literature and present the conceptual framework and hypotheses. The penultimate section describes the methodology. In the last section, we present the results and discussion and the managerial implications. Finally, we present the conclusions, limitations and future research.

Key elements in the relation compensationcontrol-performance-effectiveness


The eld sales managers play a relevant role in supervising and controlling sales force teams. They are in a frontier place between sales management and salespeople. In this sense, they can get useful information related to the salespeople behavior and also information related to the retribution and control policies of the sales management. They must transfer this information in a double sense. This paper focuses on two aspects: 1 the retribution and control policy of the salespeople; and 2 the consequences of these policies on sales performance. The sales policy: compensation and control As discussed above, traditionally compensation for salespeople has been closely linked to concepts such as control and effectiveness. Thus, Churchill et al. (1994) consider that one of the main aims of any sales compensation program is to stimulate and inuence the salespeople to do what management wants them to do, in the way management wants and in the required time. Thus, a compensation program can reward both the desired activities and performance outcome; motivating salespeople to concentrate their efforts in a new direction. These efforts will inuence both individual and company outcome. In a severe sense, compensation can be dened as the economic reward for performing a task. In the case of sales, it should have as a minimum, the following characteristics: fairness, stability, act as an incentive, be understandable, attractive, optimize the cost-prot ratio, and reward true

Compensation and control sales policies, and sales performance Ines Kuster and Pedro Canales

Journal of Business & Industrial Marketing Volume 26 Number 4 2011 273 285

effort (Strafford and Grant, 1993). The main aim of remunerating salespeople is to reward effort for the outcome of their work. The main components are a xed wage, commissions and incentives (Chonko et al., 1992; Strafford and Grant, 1993; Donaldson, 1998; Jobber and Lancaster, 2003). The particular basic compensation technique used depends on a series of variables or use situations which make one technique more suitable than another. Moreover, it cannot be said that one technique is better than the others as they all have advantages and drawbacks (Chonko et al., 1992; Strafford and Grant, 1993; Donaldson, 1998) (Table I). Related to an antecedent of compensation, control of salespeople (CO) can be dened as the degree of monitoring, direction, evaluation and reward that managers exercise over salespeople in the performance of their tasks and responsibilities (Anderson and Oliver, 1987); in order to achieve company objectives (Jaworski, 1988; Jaworski et al., 1993). To do it, sales management can opt for two very different, but complementary systems to carry out control tasks: behavior control and outcome control (Anderson and Oliver, 1987; Marshall and Mowen, 1993; Canales and Toran, 1998; Baldauf et al., 2001a, 2002; Kuster and Canales, 2008). Following Oliver and Anderson (1994, 1995) and Lapierre and Skelling (2005), among others, three elements can be used to classify the type of control focus that companies use. First, in companies which use behavior control to a greater extent, management is more involved in supervision, direction and contact between salespeople and supervisors than when outcome control is used. Second, when companies place more emphasis on behavior than on outcome, they use more subjective mechanisms to control their salespeople. Third, the control system used is related to the compensation system, which will be based on a xed salary in the case of behavior control and on commission when outcome control is applied. In practice, companies also use hybrid control systems, combining both behavior and outcome control. Thus, in accordance with the proposal by Anderson and Oliver (1987), our rst hypothesis considers a relationship between the Table I Compensation systems for salespeople
Fixed salary Use Team sales Cyclical sales Long negotiation period Non sales tasks Difcult to measure sales Advantages Easy to administer Loyalty to company Control over sales cost Security for salesperson Disadvantages Not very fair Doesnt motivate Not very exible Doesnt relate expenses and income Only commission New goods Unknown company Part-time salesperson

compensation system for salespeople and the type of control system used. It is argued that compensation which uses a greater proportion of xed salary is used with behavior control and compensation based on commission with outcome control, therefore: H1. Companies with a compensation system based on a xed salary use behavior control more than companies with a compensation system based on commission.

The effects on sales performance The achievement of acceptable sales results is an essential requirement of companies performance as well as a requirement which enables salespeople to achieve their individual objectives. That is why a great part of the work done by eld sales managers centers on motivating their salespeople, and that is considered to be a tool for achieving success (Futrell, 2003). In this sense, a eld sales manager is responsible for a group of salespeople (typically less than ten), and plays a pivotal role in applying the sales management control strategy (Baldauf et al., 2001a). In spite of that, the evaluation of the results obtained by salespeople should not be limited to a statistical analysis or a comparison with the objectives planned; sales management must also value the acquisition of information related to the salespeoples environment and present and future effects on their work (Chonko et al., 1992; Ingram et al., 2001; Kuster and Roman, 2006). In this context, and following Churchill et al. (1985, 1994), Grant and Cravens (1999), Baldauf et al. (2001a, b), Piercy et al. (2001) and Roman et al. (2002), among others, performance (PER) signies a result of behavior which is evaluated in terms of its contribution to the companys objectives and is determined by factors the salesperson can control, for example sales experience, active listening or adaptive selling (Johlken, 2006). Thus it is possible to determine the existence of good and bad salespeople (Cravens et al., 1992; Barker, 1997; Piercy et al., 1997). According to Anderson and Oliver (1987), control systems

Salary 1 Commission Need for incentives Search for security

Salary 1 Incentives Difcult individual evaluation Provide long-term incentives

Maximum incentive Reduction of xed costs Attracts good salespeople

Provides strong incentive Control over non-sales activities Improves performance

Flexible application Team spirit Adapted to objectives

Little control over salesperson Problems with changes in the environment

Insufcient incentive, sometimes Administrative control Benets the best zones

Complexity Subjective evaluations Reduces the motivational effect

Source: Based on the work of several authors (Chonko et al., 1992; Donaldson, 1998; Strafford and Grant, 2002; Jobber and Lancaster, 2003)

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based on outcome and remunerating by commissions improve a salespersons individual performance more than behavior control and xed salary, whereas Cravens et al. (1993) obtained the opposite result and suggested a direct relation between a xed salary and salespeoples individual outcome. Piercy et al. (1998), expected that salespeople who perform well in carrying out the tasks allocated by management will achieve higher performance, but their analysis shows no differences in compensation methods used in high and low performance group. Thus, and in view of the lack of agreement, we propose the following question for examination: RQ1. Do salespeople who receive a greater proportion of compensation as a xed salary give better individual performance than those who are paid by commission? There is no clear, globally accepted differentiation in the literature between the terms performance and effectiveness. Sometimes authors do not see differences between them (Szymanski, 1988); in other cases, what for some is performance is effectiveness for others (Walker et al., 1979; Weitz, 1981); and yet others consider performance consists of effectiveness plus efciency (Homburg et al., 2004). For example, Barker (1997) associates the concept of performance to each salespersons individual work and the concept of effectiveness to the organization globally, or the sales unit; but even this author uses the term performance in both situations in a more recent piece of work. In our opinion, sales organization effectiveness (FE) is an overall evaluation of the outcome obtained by the organization, or by a group of salespeople who contribute their individual achievements (Churchill et al., 1994; Roman and Munuera, 2003; among others). Commonly used nancial indicators are turnover, market share or contribution to prot (Jackson et al., 1995; Ingram et al., 1997). In addition to nancial indicators, other effectiveness indicators should also be considered related to customer satisfaction in, for example, order processing or product quality (Baldauf et al., 2001b). A sales organizations effectiveness is the consequence of many inuences, both internal (management, salespeople) and external (working environment) and refers to some indicator of the result for which the salesperson is partially responsible and which is also inuenced by a series of factors which the salesperson cannot control, known as non-personal factors or organizational and environmental variables (Churchill et al., 1985, 1994; Grant and Cravens, 1999; Baldauf et al., 2001a b; Piercy et al., 2001; Roman et al., 2002). Following the proposals by Anderson and Oliver (1987) and Jobber and Lancaster (2003), salespeople subjected to behavior control, who are therefore paid a xed salary, are more willing to accept and cooperate in achieving the objectives set by the company; they are also less afraid of risk and are not responsible for the results of their actions. Given that we can assume that companies will chose actions to facilitate the achievement of their objectives, we propose the second hypothesis: H2. Salespeople who receive a greater proportion of their pay as a xed salary are more effective than those paid by commission. 276

Methodology
Population and sample The population for this study comprises the eld sales managers of small and medium enterprises in a specic geographical area (Valencia, Spain). SMEs are a key element in Spains economy; that is, 99.8 percent of total number of rms, and 89 percent of overall employment (Ministry of Industry, Tourism and Commerce, 2007). Despite the importance of measuring business performance, there is little research on marketing effectiveness (Eusebio et al., 2006) and sales management practices (Avlonitis and Panagopoulos, 2007) among SMEs. In this eld, Spain has recived relatively little attention from organizational research (Aragon-Correa et al., 2006). The Spanish market is relatively well developed, part of the European Union, and has a good rate of growth over recent years. According to the Spanish Central Business Directory (DIRCE), in 2006, the number of SMEs reached 99.87 percent of the 3,165,619 of Spanish companies, excluding agriculture and sheries. The Hofstede Analysis illustrates that uncertainty avoidance is ranked the highest for Spain, while the other three dimensions (power distance, individualism and masculinity) are ranked moderately. This is a result of Spains feelings and concerns regarding rules, regulations, and career security (Kuster and Canales, 2008). Hofstede has developed four dimensions of differences in values that comprise the elements of national culture which are especially relevant to management research (Deshpande and Farley, 1999). So, this paper focuses on this country with the aim of comparing this context with other countries where sales researches have been carried out. For this, the data were obtained through personal survey of eld sales managers from different companies in Spain. According to Pelham (1993) and Greenley (1995), those who manage and control, such as eld sales managers, have enough reliable company-related information. These employees have information related to decision making, efciency and the environment. Additionally, formal team leadership is a critical variable in the success of teams and team performance (Lyons, 2006); and this fact is especially true in small and medium-sized companies (Pelham, 1993). During two months, diverse eld sales managers of a specic area were visited and interviewed. The use of such interviews allowed us to have better access to sales leaders and improved the veracity of the information. Non-probability sampling was employed for convenience, which provided us with 108 valid questionnaires (sampling error ^ 9.2 percent); enough sample size to apply the appropiated stadistical techniques. This sampling procedure allowed to get a high response rate with not lost values. The sample was characterized with reference to the characteristics of the rms where the 108 salespeople managers work, the characteristics of sales managers, and of their own salesforce. The following characterisation variables were used: . the sector in which they operate; . the size of the sales organisation; and . the variation in company sales and in their sector over the last two years (Piercy et al., 1997).

Compensation and control sales policies, and sales performance Ines Kuster and Pedro Canales

Journal of Business & Industrial Marketing Volume 26 Number 4 2011 273 285

Most of the rms operate in the consumer goods sector (42.6 percent) and the industrial goods sector (30.6 percent). Sales forces are larger in service sector companies, especially in consumer services (an average of 243 salespeople). This is also the sector with the greatest average increase in sales, 23 percent in comparison to 6-8 percent in the other sectors. The data on company sales variation does not show any big differences. Of the team leaders interviewed, almost half were between 33 and 39 years old, with a wide experience in commercial work (more than 90 percent have more than ve years experience), while only 4 per cent have had management duties for more than ten years. The majority are men and more than half are university educated. To dene the prole of the salesforce, we used the variables: . compensation system; . sales gures variation; and . team size. The compensation system for salespeople is basically mixed with only 2.8 percent using exclusively xed compensation. Sales variation is mainly between 6 and 10 percent, and only 3.9 percent of the teams have seen a decrease in sales. The average number of salespeople in the different teams is around 9. Measurement of variables To measure the different elements in the proposed relations, we used constructs adapted from previous research whose psychometric properties (reliability and validity) have been widely tested throughout the literature. This was done to ensure content validity. In addition to obtaining our own conclusions, we have been able to compare our results with those in the other studies (the denitive items can be seen in the Appendix Tables AI-AIII). The control the sales manager has over the salespeople is measured according to the initial proposal by Anderson and Oliver (1987), developed by Babakus et al. (1996a), and then used by several authors in their research (for example, Baldauf et al., 2001a, 2002). It is a 13 item scale, where the interviewees are asked to mark on a scale from 1 Not at all to 10 To a large extent Always, to what extent they perform control tasks. Analysis of salesperson performance provides information on their contribution to the companys results and is a consequence of their behavior. It is important to determine the inuence of their own effort to achieve the results and the effect of external factors beyond their control (Baldauf et al., 2002). The contribution by salespeople to a companys outcome is analyzed by seven items, on a seven-point Likert scale ranging from 1 Needs to improve to 7 Exceptional, based on the scale developed by Behrman and Perreault (1982); and which has been used in later studies by authors such as Spiro and Weitz (1990), Cravens et al. (1993); Sujan et al. (1994), Barker (1999), and Bigne et al. (2003). To analyze effectiveness we measure the two dimensions proposed before: nancial effectiveness and satisfaction. The rst group allowed analysis of nancial effectiveness of the team in relation to its most direct competitor over the last two years and in relation to its own objectives (Cravens et al., 1993; Babakus et al., 1996a; Barker, 1999). The second provided information on the salespeoples effectiveness according to the supervisor, namely satisfaction (Baldauf 277

et al., 2001b), which is also an indirect measure of customer satisfaction. In sum, the questionnaire has lled up by eld sales managers and it shows their perceptions of the salespeople behaviors they supervise. As stated before, performance is related to the individual effort of each salesperson whereas effectiveness is the result of all the organization. This last concept has two dimensions: satisfaction and nancial effectiveness. Satisfaction (SAT) is related to eld sales managers perceptions of the effectiveness and nancial effectiveness is the nancial dimension of effectiveness and so more objective than the other one. Several phases were followed to evaluate the psychometric properties of the scales used. In a rst phase, we calculated the item-total correlations in isolation for each scale used in the questionnaire. Following Saxe and Weitz (1982), we eliminated the items with a value below 0.35 and then, following Anderson and Gerbing (1988), we did a conrmatory factorial analysis which allowed us to further rene the scales and evaluate their dimensionality. We then calculated each scales internal consistency using the indices proposed by Fornell and Larcker (1981) and Bagozzi and Yi (1988), of extracted variance and compound reliability respectively. Finally, we checked scale construct validity (convergent and discriminant). Convergent validity was analyzed by t-student statistical value for each item studied by the conrmatory factorial analysis, requiring signicant values for the standard loads greater than 0.5. To analyze discriminant validity, we examined whether the scales represent substantially different concepts by calculating the correlations between each pair of scales, squaring them and verifying whether they are below the extracted variance index (EVI) for each scale (Anderson and Gerbing, 1988). For the conrmatory factorial analyses, we used LISREL 8.30, using the maximum verisimilitude method and the variance-covariance matrix as entry matrix, requesting the standardized solution (Hair et al., 1999). In the process of rening the scale items, after a rst estimation by conrmatory factorial analysis, both the signicance of the standardized coefcients (t value greater than 1.96) and the percentage of variance they explain for the latent variable (which is recommended to be above 0.5) were taken into account. The program provides modication indexes calculated for each non-estimated relationship and whose value corresponds approximately to the Chi-squared reduction which would be obtained if the coefcient were estimated (Hair et al., 1999). The standardized residues represent the differences between the observed covariance matrix and the matrix estimated by the program, and so the existence of residual values greater than ^ 2.58 would indicate a signicant prediction error for a pair of indicators. In addition, t quality is a measure of the correspondence between the observed entry matrix with that which is predicted by the proposed model (estimated matrix). Given that the goodness of the t of the models estimated from the structural equations is not described by one statistical test, a combination of several measurements is required to determine the strength of the model prediction (Hair et al., 1999). The evaluation indices for model t used in this research followed the recommendations reported by Hair et al. (1999). The whole process led to a reduction in the number of items used in the scales, which are described in Table II.

Compensation and control sales policies, and sales performance Ines Kuster and Pedro Canales

Journal of Business & Industrial Marketing Volume 26 Number 4 2011 273 285

Table II Evaluation of the nal scales


Item CO1 CO2 CO3 CO4 CO6 CO9 Standardised coefcients l t-value 0.743 0.819 0.842 0.848 0.767 0.802
a

R2
0.552 0.671 0.709 0.72 0.588 0.643

Reliability

Model t

8.61 8.87 8.94 8.01 8.41

rc 0.914 EVI 0.641

PER1 PER2 PER3 PER5 PER6

0.655a 0.854 0.859 0.828 0.863

7.54 7.57 7.36 7.59

0.429 0.729 0.738 0.685 0.744

rc 0.927 EVI 0.652

FE2 FE4 FE5 FE6 SAT1 SAT2 SAT3 SAT4

0.923a 0.955 0.680 0.591 0.791a 0.810 0.561 0.649

0.064 8.66 7.03 7.81 5.50 6.43

0.853 0.912 0.463 0.349 0.626 0.656 0.314 0.422

rc 0.876 EVI 0.646

rc 0.805 EVI 0.511

x2(9) 20.63 p-value 0.01 GFI 0.940 AGFI 0.910 CFI 0.974 RMSEA 0.08 RMSR 0.031 NNFI 0.957 x2(5) 7.81 p-value 0.166 GFI 0.972 AGFI 0.916 CFI 0.992 RMSEA 0.072 RMSR 0.019 NNFI 0.984 x2(19) 62.92 p-value 0.00 GFI 0.873 AGFI 0.759 CFI 0.900 RMSEA 0.14 RMSR 0.079 NNFI 0.852

Notes: rc Construct reliability; EVI Extracted Variance Index; aValue not calculated since the saturation of this item is equal to one to x the scale of the latent variable

Methodology To carry out this study, rst, we performed a cluster analysis with the information on the percentage of xed and variable compensation in the salespeoples total salary. The object of this cluster analysis was to obtain a set of groups of salespeople characterized by their main compensation system (salary or commission). These groups should maximize internal homogeneity (intra-group) and at the same time, be different from the other groups, i.e. maximize heterogeneity with the other groups. Wards method was chosen from among the possible variance methods and it groups individuals hierarchically to minimize intra-group variation in the structure formed (Mnguez and Fuentes, 2004). To choose the number of groups suitable for the proposed study, we followed Barkers (1997) proposal to separate salespeople in two groups and analyze them to discover any signicant differences between them. Thus, we analyzed the dendogram and to maximize intra-group differences we chose two groups, group 1 with 48 teams and group 2 with 60. Furthermore and in accordance with Hair et al. (1999), we used ANOVA to analyze the signicance of the differences due to the different compensation system, in relation to the type of control, individual salesperson performance and company effectiveness. Table III shows the average outcome for each type of compensation and group. So, group 1 is characterized by a high xed compensation, with an average of almost 75 percent, and commission reduced to 25 percent of the salespersons total salary. Group 278

Table III Compensation system


Compensation system Fixed (% of total salary) Variable (% of total salary) Group 1 2 1 2 Mean (%) 73.58 20.53 25.29 79.47

2 shows similar but inverse percentages, i.e. the basic salary is commission which constitutes almost 80 percent and a small percentage, 20 percent is the xed compensation. In both cases the differences are signicant.

Results
After the descriptive analysis, we then studied the possible effects of the type of compensation, xed and/or variable, on the type of control system used, individual salesperson performance and organization effectiveness; all under the perceptions of the eld sales managers. The hypotheses and research question were tested using ANOVA test. Individual measures that demonstrated acceptable reliability and validity for the dimensions were combined into scales by taking the arithmetic mean of the items measuring each dimension (see the Appendix Tables AI, AII and AIII). Table IV presents the correlations among the measures for each dimension. After testing the hypotheses

Compensation and control sales policies, and sales performance Ines Kuster and Pedro Canales

Journal of Business & Industrial Marketing Volume 26 Number 4 2011 273 285

Table IV Correlations estimates


CO Control Performance Financial effectiveness Satisfaction 1 0.58 0.69 0.62 PER 1 0.59 0.67 FE SAT

1 0.53

and research question, we analyze every item for each dimension. The results are represented graphically for greater clarity. More in-depth information can be found in the Appendix Tables AI-AIII). Table V presents the results of the hypothesis and research question testing. This table shows the cluster means and standard deviation, the ANOVA values, and the contrast tests results of the two hypotheses and the research question. Related to the rst hypothesis, data shows that companies with a compensation system based on a xed salary use behavior control (mean 7:36) more than companies with a compensation system based on commission (mean 5:23). These differences exist between both groups and are statistically signicant. For this, H1 can be accepted ( p , 0.1). Figure 1 shows the results of the t-test analysis between group 1, with a higher percentage of xed salary and group 2, with a higher percentage of commission. The items measure the extent to which the salespeople leaders perform different control tasks. In all the items analyzed, group 1 (xed compensation) scores higher than group 2 (variable compensation). The biggest differences can be seen in the control aspects related to the mutual contribution of information on sales tasks (CO2, CO3 Table V Results of tests
Mean SD 1.62 2.05 1.03 1.21 0.72 0.95 1.03 1.01 ANOVA Fs 34.55 Sig. 0.00

and CO6). As a result, salespeople in group 1 are subject to greater control, especially over their behavior. These results are similar to those reported by Piercy et al. (1997) with eld sales managers located in the United Kingdom and Baldauf et al. (2001a) in Australia and Austria. RQ1 tried to answer whether salespeople who receive a greater proportion of compensation as a xed salary give better individual performance (mean 4:72) than those who are paid by commission (mean 4:08); and our results can answer afrmatively ( p , 0.1). In this sense, Figure 2 shows the results for salespeoples performance as evaluated by their supervisors. As can be seen, in all cases group 1 with the greatest proportion of xed salary, is evaluated more highly than group 2, with a greater proportion of commission. However, not all the differences are signicant. This situation can be explained by item PER2 which concerns aspects related to possible sales situations which are protable for the salesperson. Thus, when a salesperson is rewarded by commission, he makes more effort. The results are similar to: . the study of Cravens et al. (1992) with 99 Australian sales organizations; . the study of Barker (1997) with 250 Canadian sales executives; and . the study of Piercy et al. (1998) with eld sales managers located in the United Kingdom. The greatest differences can be found in the items related to long term operations and the similarity between the salespersons and the companys objectives (PER5 and PER6) which shows that salespeople who are rewarded by incentives do not feel they belong to a group and are more concerned about their own objectives in the short term. Lastly, and related to the second hypothesis, the paper analyses the effect of compensation system on effectiveness. In this sense, nancial effectiveness and eld sales managers satisfaction are greater in group 1, showing signicant differences. The results provide support for H2; that is, salespeople who receive a greater proportion of their pay as a xed salary are more effective than those paid largely by commission. Effectiveness means the results for which the salesperson is only partially responsible as they depend on factors which are beyond his/her control. Note that the effectiveness analysis is carried out from two perspectives, nancial effectiveness (FE) and supervisor satisfaction with the salespeople (SAT). Figure 3 shows the data on sales organization effectiveness. In all the items, the results for group 1 with the higher proportion of xed compensation exceed those of group 2, with a greater proportion in commission. In this analysis, all the differences are signicant, and so it can be stated that teams rewarded with a greater proportion of xed salary are more effective than those who Figure 2 Compensation and performance

Control Group 1 Group 2 Performance Group 1 Group 2 Financial effectiveness Group 1 Group 2 Satisfaction Group 1 Group 2

7.36 5.23 4.72 4.08 3.64 2.85 5.07 4.24

8.38

0.00

22.13

0.00

17.79

0.00

Figure 1 Compensation and control

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Figure 3 Compensation and effectiveness

Table VII Comparative results


H1
Barker (1997) Piercy et al. (1997) Piercy et al. (1998) Baldauf et al. (2001a, b) Baldauf et al. (2001a, b) Our results 2 2 2

RQ1
2 2

H2
2 2 2 2 2

Notes: 2 Not analysed; + Positive relationship

are paid by commission. Thus, xed salary is more effective both nancially and according to their supervisors than those remunerated on a commission basis. The biggest differences are found in the items of effectiveness in relation to the objective of the salespeople themselves (FE2, FE4 and FE6) due to the fact that salespeople remunerated by commission seek to achieve their objectives rather than those of their company or team. We would also emphasize the difference in new customer search (SAT2), this is due to the fact that salespeople on commission look for short term outcome and therefore sell to the customers they already have. These results conrm in a way those reported by Piercy et al. (1998) with eld sales managers located in the United Kingdom and Baldauf et al. (2001a) in Australia and Austria. Must be noticed that these authors analysed the effects of control system on effectiveness; so and indirectly the effect of x salary is analysed. Although we have found similarity of the results in our and other countries, Table VI shows there exist differences among countries in relation to Hofstede Index indicators. So, the cultural differences among countries could not suggest a cultural moderator. In sum, Table VII shows the results of our and the other studies related to this eld.

Conclusions
This study has been developed with a view to furthering knowledge in one of the most important aspects of business activity, salespeople management, which is not always given appropriate treatment in marketing literature. So, through this study more light is given to sales management literature due to diverse facts. First, because of this paper tries to join previous research in this eld. Additionally, this paper focuses on the eld sales managers perceptions. And nally, the study has been carried on in a country where this eld of study is Table VI Hofstede analysis
Country Australia Austria Canada Spain United Kingdom World average Source: Taylor (2003) Power distance 36 11 39 57 35 55

even nowadays relatively new. For these reasons and because of data obtained, our ndings have strong managerial implications. Even more, compensation plan for the salespeople has important consequences on organization effectiveness. We have focused on studying the relation between the type of basic compensation for salespeople (xed or variable), control systems used by supervisors, salesperson performance and sales organization effectiveness. The rst conclusion to this research is that, as demonstrated by previous studies, the compensation system used for the salespeople has signicant effects on salesperson performance and sales organization effectiveness and is related to the control system used by the company. This result seems logical because outcome control and consequently compensation by commission systems require careful monitoring of the sales gures achieved by the salesperson being evaluated. We can therefore state that compensation based on a xed salary is used when behavior control is applied and compensation based on commissions is used when outcome is controlled. Compensation by xed salary is related to control over salespeople while compensation by a system of commission is related to motivation. Thus, a combination of the security of a xed salary and motivation for the variable part of it makes the salesperson fully develop his abilities in the job, obtaining better outcome and making the company more effective. For this reason, in practice most rms use mixed compensation systems with a partly xed, partly variable salary. The second conclusion is that the results show that behavior control requires a compensation system based on a xed salary. This is because if a company wants to introduce a behavior control system, the tasks to be performed by the salespeople must rst be dened, and as the salespeople cannot decide what actions to perform, the risk of such actions must lie with the company. Given that the company will dene the actions so that they facilitate the achievement of its objectives, this system makes teams more efcient.

Individualism 90 55 80 51 89 43

Masculinity 61 79 52 42 66 50

Uncertainty avoidance 51 70 48 86 25 64

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However, using compensation systems based on a xed salary does not mean that outcome control should be forgotten, in fact there are no signicant differences over the control of this aspect between the two groups analyzed. Despite these results we can conclude that salespeople who are remunerated through a greater proportion of xed salary give a better individual performance than those remunerated by a system which varies according to their results. The third conclusion is that if a company is going to introduce a compensation system based on commission on sales, it should concentrate on controlling the outcome rather than behavior, since the salespeople assume the risk of their work and therefore must be able to decide which actions they consider are most appropriate for achieving the objectives. Furthermore, given that compensation will be based on sales, outcome must be controlled since it is the basis for the compensation. Compensation based on commission will only be appropriate when the company cannot determine a priori the best course of action for their salespeople to achieve the objectives being contemplated since the salesperson will focus his objectives to benet himself rather than the company and will therefore be less efcient. The fourth conclusion is that salespeople who are paid by systems based on a xed salary, identify more closely with company objectives and therefore develop actions with a long term vision, whereas in a system based on commission, objectives are short-term and in particular concerned with immediate sales. For this reason, it should be noted that teams under greater xed compensation are more effective both nancially and in terms of supervisor satisfaction. Related to the implications for Spanish companies, the results in this study point out the need to make an important change with respect to the accomplishment of tasks related to the evaluation and control of salespeople. So, previous studies (e.g. Canales and Kuster, 2006) contrast the frequent use of the results based systems to control and evaluate the salespeople, instead of using more behavioral systems. Results show that these results based systems have no positive effects on sales effectiveness and salesperson performance. Therefore, companies and more especially sales managers, must control and supervise sales results but also, and even more so, behavioral aspects. Our ndings reinforce those underlined in other countries, such us Canada, Australia, Austria or United Kingdom. This study points out the role of eld sales managers that sometines is forgotten by SMEs. The results of the present paper must be understood in the context in which they have been produced. Any generalisation of results is limited by the studys characteristics, in particular by the sample used and the particular situation of the country analyzed. At the same time, and because our study relies on the subjective judgment of sales eld managers perceptions, the measurement of some concepts are subject to various cognitive biases. Future studies should use external, and perhaps more objective sources for judgment. Moreover, to avoid residual effects of variance, it may be worthwhile obtaining information on the concepts analysed from salespeople and customers, to compare these results with the eld sales managers opinion. Additionally, other scales for measuring the concepts could be incorporated The interest of some of the results of this study do, however, open new horizons of work, for example, the study of the relationships between the concepts analyzed in specic 281

industries or activities. At the same time, analysis of other concepts such as the relationship between gender, control system, performance and effectiveness may also be of interest to enterprises. It would also be useful to develop and contrast a model which includes all these variables. In this sense, and following the same methodology of Chan (1998) or Naumann and Bennett (2000), it could be possible to analyse salesperson performance and salesforce effectiveness using multilevel models.

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Further reading
Baldauf, A. and Cravens, D. (2002), The effect of moderators on the salesperson behavior performance and salesperson outcome performance and sales organization effectiveness relationships, European Journal of Marketing, Vol. 36 Nos 11/12, pp. 1367-88. John, G. and Weitz, B. (1989), Salesforce compensation: an empirical investigation of factors related to use of salary versus incentive compensation, Journal of Marketing Research, Vol. 26, pp. 1-14. Matthyssens, P. and Johnston, W.J. (2006), Marketing and sales: optimization of a neglected relationship, Journal of Business & Industrial Marketing, Vol. 21 No. 6, pp. 338-45. Perez, C. (2004), Tecnicas de analisis multivariante de datos. Aplicaciones con SPSS, Pearson Prentice-Hall, Madrid. Polo, Y. and Cambra, J. (2007), Importance of company size in long-term orientation of supply function: an empirical research, Journal of Business & Industrial Marketing, Vol. 22 No. 4, pp. 236-48. Ruiz, J.I. (1996), Metodologa de la investigacion cualitativa, Universidad de Deusto, Bilbao. Tang, Y., Wang, P. and Zhang, Y. (2007), Marketing and business performance of construction SMEs in China, Journal of Business & Industrial Marketing, Vol. 22 No. 2, pp. 118-25. (An Appendix follows on the next page.)

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Appendix. Statistical analysis of the items used


Table AI
Compensation and control CO1 CO2 CO3 CO4 CO6 CO9 Regular review of salespeoples reports Attention paid to the duration of salespeoples trips Close watch on salespeoples expenses Active participation in in-service training of the salesperson Discusses the evaluation of the outcome with the salespeople Evaluates the salespersons professional development Group 1 2 1 2 1 2 1 2 1 2 1 2 Mean 7.54 5.98 6.88 4.18 7.13 5.00 7.67 5.53 7.88 5.67 7.13 4.85 SD 1.87 2.25 2.30 2.49 2.03 2.62 1.55 2.50 1.58 2.48 2.33 2.82

t
14.765 33.233 21.300 26.712 28.684 20.182

Sig.

0.000 0.000 0.000 0.000 0.000 0.000

Notes: Scale used from 1 Not at all to 10 To a large extent-Always; Group 1: n 48; Group 2: n 60

Table AII
Compensation and performance PER1 PER2 PER3 PER5 PER6 They contribute a high market share to the company They sell products with a high prot margin They generate a high level of sales (in monetary units) They perform protable. long-lasting operations They exceed their objectives throughout the year Group 1 2 1 2 1 2 1 2 1 2 Mean 4.81 4.27 4.65 4.18 4.81 4.12 4.67 3.98 4.67 3.82 SD 1.24 1.22 1.25 1.30 1.39 1.56 1.27 1.44 1.08 1.45

t
5.229 3.516 5.812 6.611 11.368

Sig.

0.024
0.064

0.018 0.012 0.001

Notes: Scale used from 1 Needs to improve to 7 Exceptional; Group 1: n 48; Group 2: n 60

Table AIII
Compensation and effectiveness FE2 FE4 FE5 FE6 SAT1 SAT2 SAT3 SAT4 Sales turnover with respect to the teams objectives Market share with respect to the teams objective Protability with respect to the major competitor Protability with respect to the teams objective Average annual sales per salespersona New customers obtaineda Acceptable level of salesforce renewala Retention of existing customersa Group 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 Mean 3.88 2.97 3.79 2.83 3.52 2.87 3.38 2.87 5.04 4.32 4.94 3.60 4.88 4.28 5.46 4.68 SD 0.95 1.06 0.92 1.11 0.82 1.13 0.98 1.08 1.13 1.25 1.59 1.54 1.29 1.40 1.09 1.18

t
21.360 23.127 14.214 6.397 9.717 19.508 5.063 12.223

Sig.

0.000 0.000 0.000 0.013 0.002 0.000 0.027 0.001

Notes: Scale used from 1 Much worse to 5 Much better; aScale used from 1 Needs to improve to 7 Exceptional; Group 1: n 48; Group 2: n 60

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About the authors


Ines Kuster is Lecturer in Marketing in the Department of Marketing in the School of Economics (University of Valencia). Her research attention has focused on strategic marketing areas and sales. She has published articles in diverse refereed journals (e.g. JQRM, EJIM, and relevant Spanish journals). She is author of one book (Relationship Selling), and book chapters related to her investigation eld. She has also presented papers at the European Marketing Conference and the Academy of Marketing Conference. She collaborates with diverse enterprises, helping them in marketing areas (recruiting salespeople, training sales managers, analysing commercial efforts, etc.). Ines Kuster is the corresponding author and can be contacted at: ines.kuster@uv.es Pedro Canales is Coordinator of Estema School of Tourism (University of Miguel Hernandez) and Associated Professor in the Department of Marketing in the School of Economics (University of Valencia). His research attention has focused on strategic marketing areas and sales management. He collaborates with diverse enterprises in sales management areas.

Executive summary and implications for managers and executives


This summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benet of the material present. Do salespeople who receive a greater proportion of their compensation as a xed salary give better individual performance than those who are paid by commission? It is a question companies dependent on a sales force continually grapple with and seeking help from experimentation has not in the past been conclusive, with academics providing opposing results. Consequently, how to reward salespeople remains a challenge. Weighting it on commission risks the sales person taking a shortterm position, concentrating their mind on selling to existing customers rather than harder-to-reach new clients and having their own aims and objectives, rather than the companys, as their priority. Weighting it on a xed salary risks taking away an impetus to earn more. These conicting outcomes must also be considered along with how much control over a sales persons behavior the company wishes to exert. Compensation for salespeople is one of the most important issues in sales force management. In a relationship selling environment, one practical concern for sales managers has been how best to reward salespeople to achieve long-term and changing objectives. In Compensation and control sales policies, and sales performance: the eld sales managers points of view Ines Kuster Boluda and Pedro Canales Ronda analyze the relationship between the basic compensation system (salary and commissions) and both individual sales person performance and sales organization effectiveness. In a study based on SMEs in Spain and focusing on the perceptions of eld sales managers,

support was found for the view that salespeople who receive a greater proportion of compensation as a xed salary give better individual performance than those who are paid by commission. However, it can also be said that when a sales person is rewarded by commission, he makes more effort. What is certain is that the compensation system used for the salespeople has signicant effects on sales person performance and sales organization effectiveness and is related to the control system used by the company. This seems logical because outcome control and consequently compensation by commission systems require careful monitoring of the sales gures achieved by the salesperson being evaluated. Compensation based on a xed salary is used when behavior control is applied and compensation based on commissions is used when outcome is controlled. Compensation by xed salary is related to control over salespeople while compensation by a system of commission is related to motivation. Thus, a combination of the security of a xed salary and motivation for the variable part of it makes the salesperson fully develop his abilities in the job, obtaining better outcome and making the company more effective. For this reason, in practice most rms use mixed compensation systems with a partly xed, partly variable salary. If a company wants to introduce a behavior control system, the tasks to be performed by the salespeople must rst be dened, and as the salespeople cannot decide what actions to perform, the risk of such actions must lie with the company. Given that the company will dene the actions so that they facilitate the achievement of its objectives, this system makes teams more efcient. However, using compensation systems based on a xed salary does not mean that outcome control should be forgotten. If a company is going to introduce a compensation system based on commission on sales, it should concentrate on controlling the outcome rather than behavior, since the salespeople assume the risk of their work and therefore must be able to decide which actions they consider are most appropriate for achieving the objectives. Furthermore, given that compensation will be based on sales, outcome must be controlled since it is the basis for the compensation. Compensation based on commission will only be appropriate when the company cannot determine a priori the best course of action for their salespeople to achieve the objectives being contemplated since the sales person will focus his objectives to benet himself rather than the company and will therefore be less efcient. Salespeople who are paid by systems based on a xed salary identify more closely with company objectives and therefore develop actions with a long-term vision, whereas in a system based on commission, objectives are short-term and in particular concerned with immediate sales. For this reason, it should be noted that teams under greater xed compensation are more effective both nancially and in terms of supervisor satisfaction. Companies, and more especially sales managers, must control and supervise sales results but also, and even more so, behavioral aspects. The role of eld sales managers is sometimes forgotten by SMEs. (A precis of the article Compensation and control sales policies, and sales performance: the eld sales managers points of view. Supplied by Marketing Consultants for Emerald.)

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