Chapter 11

Compensating the Sales

Force
Sales Management: A Global Perspective
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!