Chapter 11 Compensating the Sales Force

Sales Management: A Global Perspective

Earl D. Honeycutt John 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 salespersons 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, Presidents Club

Opportunity to travel Educational assistance

Sales Expense Plans

Linked to salary in some ways
Globally, firm may pay salespersons 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

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 firms 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 Salespersons 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!