Sales Force-Compensation

Bins M Mathew
 Topics :-
Sales – compensation Sales&Dist Mgmt –Dr. S.L
Gupta
Sound compensation
Motivation – Performance, efficiency
Realize larger sale
Stability to sales –seasonal fluctuations
Controlling performance

Agrarian economy to developed economy

Recruitment, training and motivation CTC

 Hertzberg’s Two factor Theory

Dissatisfiers:- (Hygiene) – Extrinsic (maintenance)

–Company policy, administration, supervisions, relationships
with supervisors, working conditions, salary, relationship with
peers, personal life, relationship with subordinates, status,
security
–Only aware of these when they are missing

Motivators:- Intrinsic (Job content )

–Achievement, recognition, nature of the work itself,
responsibility, opportunities for advancement and growth
–Things that make you want to work

In India compensation is a hygiene / motivator ?

 Research Evaluation

Rewards in motivating the sales people

Pay structure

Security

Complements

Importance of the set of motivators varies with demographic variable,

position in the organisation
 Objectives of Sales compensation plan

To attract qlty sales force

Improve productivity level of SP
Optimizing the sales effort (Sales x expenses)

Reduces attrition
Better image projection

If you throw peanuts you get monkeys

 Characteristics of an effective compensation
plan

Should address short-term and long-term issues of SP

Fixed component and regular flow
Compensation plan linked to performance & effort
Future orientation
Based on equity and equality
Should not be complex
Control
Participatory method

Compensation based on :- industry rate, nature of job, difficulty involved

in realizing sales, ability and experience
 Factors influencing the design of a compensation plan
Financial ability of the firm to pay
-additional increments w.r.t higher profit margins
Pull strategies
-Sales people – order taker
-Sales person – order giver
-Demand x Supply
New product launches
-Push strategy (exp and qualified force)

Govt rules and regulations

Nature of the product

-B2B, B2C
- Unit price of product, Premium products
Factors influencing Special company needs and problems

Increase marketing effectiveness

-Overemphasize low margin items & neglect more profitable
products

Smaller order problem

Point-of-purchase displays
 Types of compensation plan
Compensation – Financial Reward
- Non financial Reward

Disposable income = (Salary – tax)

Salary
Spendable income (TAKE-HOME) = (Disposable – savings)
( current spending )

Non-financial compensation – Higher order needs

The level of reward, the type of reward, the method of implementation and
reinforcement of the reward system are significant in attracting talent to the
organisation
 Financial Reward System
Financial compensation Plans
Fixed component + Variable component + Expenses + Fringe benefits

(Basic support) (Commission) (Reimbursement)

(Profit sharing) / (Bonus)
Straight Salary Plan
- Simplest methods (17% use )
- Pay cheque – weekly/monthly
- Bulk of Non selling task , Order taking
- B2B, B2C
- Salary + increment plan
- Salary + allowance plan
- Success depends on supervision
HPCL, BPCL, ONGC , B2B
 Financial Reward System
Straight Salary Plan – +Situational factors
-Team involved in sales – Performance ?
-Pharmaceutical industry –O.C, missionary
-Sales realized with sales support staff (demo, inst, main,supp)
- Pull strategy ?
- Fixed component inversely proportionate to selling effort
- Cash cows
- Service
- Economic downturns, seasonal business

M.R, (Relationship x transactional)

 Financial Reward System

Straight Salary Plan – - factors

-lacks motivational effects
-not challenging hard working sales person
- hard burden to control
- prospecting and long term relationship building neglected

Context for straight salary ;-

Routine selling jobs
Extensive missionary and educational selling jobs
Lengthy presales and post sales service and negotiations
 Financial Reward System
Straight Commission Plan (PRODUCTIVITY )
-Compensation linked directly to performance
-”risk compensation plan”
- Fixed or sliding rate (slabs for level of sales)
- Weeding out
- flat rate commission, Progressive / regressive rate of com.
Differential
- Aggressive sale operations

Highly exp SP

Progressive commission Plan –

-Each quarter the progressive commission rate
5% on first Rs. 20,000 = Rs. 1,000
7% on next Rs. 80,000 = Rs. 5,600
10% on everything over 1,00,000 = Rs. 3,000 (10% of rest)
----------------
The sales person sales of Rs. 1,30,000 = Rs. 9,600
 Financial Reward System
Regressive commission Plan –
-Each quarter the progressive commission rate
10% on first Rs. 20,000
7% on next Rs. 80,000
5% on everything over 1,00,000

Straight commission Plan – + factors

-rewards linked to ones own performance
-Control sales
Highly exp SP
Straight commission Plan – - factors
-no loyalty to organisation, less organised
-price discounting - pressurize
-easy-to-sell low-margin products
- demotivated in down turns
-Administrative cost high
-complex pattern
 Financial Reward System
Bonus and incentives
-Supplemental for above average performance
•Customer satisfaction
•Customer retention
•Adding new customers
•New product
• outstanding collection of overdue

-incentives tied to sales quota

Salary + incentive Plan (Combination Plan)
-Straight salary + variable proportion
-60%salary + 30% commission + 10% bonus + incentives
- flex plan
+ factors
Security of fixed income
Control + motivation
Recession – not likely to lose all income
 Financial Reward System
Drawing account and commission plan
-Drawing account – credits the commission
- Draw permissible limit – Credit balance, debit balance
+ factors
Expenses can be checked
Assurance of regular income
Sales man’s performance & market situations
- factors
Pressure for increasing comm. For efficient and exp sale people
Concern to sell easy-to–sell items
Allied methods
- Equity holding of the company – earned share
- Special remuneration plan-non selling activities
- Expense allowance plan
 Financial Reward System
Point based incentives

Upto 80% achievement of sales plan - Nil

81-90% of the achievement - 8 points
91-95% of the achievement - 12 points
96-101% of the achievement - 18 points
101-110% - 24 points
115% onwards - 30 points
Value per point Rs. 200 per point

A salesman achieving 115% of the sales plan

30 points x Rs. 200 = Rs. 6,000
 Non-Financial Compensation
Promotions –
higher job responsibility
Motivational tool
Job enrichment +
Recognition Programmes –
medallions, Crorepati , Informal recognition
Fringe Benefits –
medical benefits
retirement benefits
Life insurance
Stock option Employment benefits
Paid vacation
Sick leave
ML/ PL
 Non-Financial Compensation
Expenses accounts –
reimburse expenses – prevent padding
3 expense plans -
- company pay
•Expenses quota
- SP pay – (SP are paid straight commission)
- company partially pay

Perks –
Special status employee
Status perks, Financial perks, Personal growth perks

Office location Company vehicle Training

Job title Domestic help
Parking space Club membership
 Evaluation / control of Sales Force

Performance – Test effectiveness of the sales programme

PERFORMANCE APPRAISAL
“The evaluation of the performance of a salesperson by the
mgmt of an organisation in relation to some objective
attribute of the job”
-Ensure effective administration
-Selection for promotion, rewards, termination. Other recognition

Development aspect :- performance, strengthening job skills, counseling,

training
 Types of Judgment for evaluating Sales
Performance
Relative method (overall performance)
1) Compare performance with other
Rank order from Best - Worst
2) Group evaluation
Top three-middle bracket- lower set
No clarity on how big or small the difference are, no information
Measured against peers

Absolute method (specific performance)

1) Performance measured in sales volume, market share / revenue

Diff in evaluation standards between mgrs, Diff selling situation

Measures are objective , measured against performance
 Focus of the measure
Trait based (personal traits)
Decisiveness, reliability, energy, loyalty (subjective)
Describing a salesperson

Outcome based (result of selling process)

amount of sales, no of product/units/volumes
profitability, cost/ sales
MBO
Results at any costs
•Qnty affect Qlty of service
Rely on internal documentation
•Call reports, PO, Financial documents
Computerised Performance Monitoring

Behaviour based (behaviour)

 Focus of the measure
Behaviour based (behaviour-selling Activity)
Product knowledge, presentation qlty,
closing ability, service performed,
number of active accounts, relationship
no. of calls/day
no of working days/period of time
 Performance rating
Rating forms :-
•Uniform and consistent parameters of evaluation
•Too general, Judgmental bias

Rating forms
Please rate the salespeople on the basis of the scale given below
1. 2. 3. 4. 5.
(strongly disagree) (Strongly agree)

a. Organise his call plan ( )

b. Listen well ( )
c. Does his homework ( )
d. Writes reports regularly ( )
e. Keeps update customer information ( )
 Performance rating
Forced choice scales – (Inventory of adjectives for evaluation)
•Essay writing

For each pair of adjectives, place a tick mark in the most descriptive column next
to the adjective that best describes the sales person you are evaluating
Pairs Adjectives Weights. Most descriptive.

a. Always criticizes, never praises -3 ( )

Carries out orders by passing on the 0 ( )
responsibility to others
b. Knows the job and performs well 3 ( )
Plays no favorites 1 ( )
c. Understands the customer’s problem 3 ( )
Hardly cares for customers 1 ( )
 Performance rating

Behavioural Observation scale – (significant job incidents)

 Performance rating

Call Report – periodic accounts (time –prospecting, demonstration & follow-up)

•Assigning client to new recruits
•Forcasting – composite method
 Performance rating

Silent Call Monitoring Scores

- Greeting
- Ascerting customer needs and demands
- Courtesy
- Communication and listening skills
 Performance rating

Weekly activity Report (Unusual events and incidents )

Market
•Price wars, new competitor, push money environment
•Changes in purchase practice, change in decision makers
 Performance rating

Customer Satisfaction Surveys :-

random or periodic
mass mailing questionnaires
e.g : - Airlines
 Performance rating

Combination plan of evaluation:-

Outcome & Behaviour based rating models
 Performance appraisal conduction

Primary evaluator
- Immediate supervisor (promotion and pay revision)
Self appraisal
- Sales person

Formal Performance Development Review

 Performance appraisal conduction

Biases
- inflate or deflate performance rating
- conscious
•+ve or -ve
- unconscious
 Performance appraisal – Individual vs Team

Multifunctional teams
- ROLE RESULT MATRIX

Position Developing a new business Servicing existing customer

Key Account mgr

Regional Sales Mgr
Application engg.
Customer service staff
Installation and Qlty engg.
Financial staff.