CHAPTER 14 COMPENSATING SALESPEOPLE THE SALES FORCE REWARD

CHAPTER 14 COMPENSATING SALESPEOPLE

THE SALES FORCE REWARD SYSTEM F Financial compensation F Non-financial compensation

IMPORTANCE OF SALES FORCE REWARDS F Sales force F Company F Customer relations and goodwill F Strategic planning

DESIGN CONSIDERATIONS F Inherent conflicts F No plan fits all situations F Internal equity F External equity

COMPENSATION PLAN OBJECTIVES F Correlate efforts, results, and rewards F Control activities F Ensure proper treatment of customers F Attract and keep good salespeople

BASIC REQUIREMENTS F Provision for two types of income F Flexibility and stability F Simplicity F Economy and competitiveness F Fairness

STEPS IN DESIGNING A PLAN 1. 2. 3. 4. 5. 6. Review job analysis/description Determine objectives Determine job elements Establish level of compensation Pretest Administer/Evaluate

REVIEW JOB DESCRIPTION F Review of job nature, scope, and difficulty

SET OBJECTIVES F Increase volume F Obtain new accounts F Minimize expenses

ESTABLISH JOB ELEMENTS F Controllable F Measurable

LEVEL OF COMPENSATION F Type of plan F Size of company F Age of salespeople F Industry

COMPENSATION ISSUE F Should sales managers always be paid more than the people they manage?

PRETEST F Start with one or two sales divisions

ADMINISTER/EVALUATE F Implement F Review and modify where necessary

METHODS OF COMPENSATION F Straight salary F Straight commission F Combination F Team Selling F Optimum Pay Plans

STRAIGHT SALARY PLANS F Salary is a fixed element F Degree of security F Lower turnover F “Full” approach to selling F No direct incentive

WHEN TO USE F While in a training mode F Entering a new territory/new product market F Tremendous time to sell to one account F Missionary sales positions F Joint selling

STRAIGHT COMMISSION PLANS F Based on a unit of accomplishment F Base, rate and starting point F Advances (drawing account) F Provides incentive F Weeds out poor performers F Supervision problems F Split commissions

WHEN TO USE F Company is weak financially F Great incentive required F Little non-selling work required F Supervision not possible F Long term relationships not important F Part-time sales people/manufacturer’s agents

RATE SCHEDULES F Progressive rate schedule – 5% on first $20, 000 – 7% on next $80, 000 – 10% on amount over $100, 000 F Regressive rate schedule

COMBINATION PLAN F Most popular plan F Overcomes some of the weaknesses of straight salary and straight commission plans

TEAM SELLING F More common today F Difficult to provide rewards F Shared commissions/group bonuses

OPTIMUM PAY PLANS F Commission based on gross margin F Forces individuals to focus on items which maximize profits for the company

OTHER COMPENSATION ISSUES F Bonuses F Drawing Accounts F Expense Accounts

BONUSES F Payment for above normal performance F No obligation to provide regularly

DRAWING ACCOUNT F Cash advance called a “draw”

DRAWING ACCOUNT

EXPENSE ACCOUNTS F Reimbursement for travel and other sales related costs F A troublesome task for the sales manager!

EXPENSE BREAKDOWN Meals Air Travel Automobile Lodging Entertainment Other 16% 24% 18% 13% 3%

CHARACTERISTICS OF A GOOD EXPENSE PLAN F No net gain/loss F Equitable treatment F No curtailment of beneficial activities F Simple and economical F Avoidance of disputes F Company control/elimination of padding

CONTROLLING EXPENSES F Type of plan – salary versus commission – unlimited versus per diem F Automobiles F Training F Travel planning

FROM THE TEXT F Read everything in Chapter 14!!