Directory UMM :wiley:Public:college:Dalrymple:

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Compensating Salespeople

Compensation Methods

C. Combination Plans

– _{Most common today}

1. Salary + Commission

• base for non-selling activities

• commission for incentive to push complex industrial

accounts

2. Salary + Bonus

• base for non-selling activities

• bonus to reward completion of special tasks in consumer

products selling

3. Salary + Commission + Bonus

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Compensating Salespeople

Compensation Methods

B. Straight Commission

– _{Maximum incentive} – _{All variable cost}

– _{low costs when sales/salesperson is low}

– _{hard to control reps} – _{low loyalty}

– _{pay low when business is weak}

– _{used in small firms, door-to-door, retail sales,}

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Compensating Salespeople

Components Needs

* Motivate effort on non-selling activities

Salary * Adjust for differences in territory potential

* Reward experience and competence

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Compensating Salespeople

Components Needs

* Direct effort toward strategic

Incentive objectives

Payments * Provide additional rewards for top

(Bonus) performers

* Encourage sales success

Sales * Stimulate additional effort targeted at

Contests specific short-term objectives

Personal * Satisfy salespeople’s security needs

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Compensating Salespeople

Expense Accounts & Benefits

• _{Objective -- enough, but not too much.}

• _{Types of plans}

– _Unlimited

• _{Low supervision} • easy to abuse

– _{Per diem}

• _{controls costs but may restrict coverage of distant accounts} • needs constant adjusting

– _Limited

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Salary

•Motivate effort on non-selling activities •Adjust for differences in

territorial potential

•Reward experience and competence •Motivate effort on non-selling activities •Adjust for differences in

territorial potential

•Reward experience and competence

•Motivate a high level of selling effort •Encourage sales success

•Direct effort toward strategic objectives

•Provide additional rewards for top performers

•Encourage sales success •Direct effort toward strategic objectives

•Provide additional rewards for top performers

•Encourage sales success

•Stimulate additional effort targeted at specific short-term objectives

•Satisfy salespeople’s security needs •Match competitive offers

COMPONENTS NEEDS

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Figure 14-2: Comparing Salary and Commission Plans for Field Sales Representatives

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Compensating Salespeople

In-Class Exercises 14-1

DEC Joins the Rest of the World

1. What is the purpose of adding an incentive portion to sales compensation?

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Compensating Salespeople

3.How can the compensation plan be adjusted

for different types of selling situations

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Compensating Salespeople

5. What are the trade-offs between alternative compensation plans?

6. How will the compensation changes affect:

* Recruiting * Setting Quotas

* Sales Territories * Organization

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Compensating Salespeople

In-Class Exercises 14-1

Results: DEC Joins the Rest of the World

• _40%_{incentive for salespeople selling}_{to resellers and}

VARS because of the large volume involved and the emphasis on volume rather than consultative selling.

• _20%_{incentive for the}_regular_{sales force}

• _10%_{incentive for those salespeople assigned to one or a}

few large accounts with longer selling cycles and

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Compensating Salespeople

Other Considerations • Trend toward TEAM selling

– _{difficult to reward team members for group effort} – _{usually emphasize shared commissions / bonuses}

• _{Optimum Pay Plans}

– _{Gross margin commissions}

• _{Salesperson & firm attempt to maximize same $$} • rasies wages for salespeople often at expense of

company profits

• tends to increase industry price competition

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Compensating Salespeople

Selecting Benefits

• Salespeople expect cars

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Compensating Salespeople

Setting Pay Levels

• _{At parity, above, or below competition}

• _{Some salespeople paid too much to keep peace}

• _{Example Public Service of New Mexico (14-4b)}

– _paid_{better than average}_{before deregulation}

– _{With deregulation more competition}

• need to reduce & control salary costs

• employees made contributions to health plans

• _{fewer pay classifications, flexible benefits,}

• pay based on individual performance & responsiveness

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Compensating Salespeople

Compensation Methods

A. Straight Salary

– _{Control wage levels}

– _{easier to control rep’s activities} – _{increases loyalty to firm}

– _{fails to provide incentives}

– _{high costs when sales are low}

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Table 14-1 Use of Compensation Plans

Straight Salary 7

Straight Commission 10

Salary Plus Bonus 34

Salary Plus Commission 21 Salary Plus Bonus Plus Commission 24 Commission Plus bonus 4

Total 100%

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Compensating Salespeople

Gross Margin Commission Problems

Marketing

Selling Price $100 $92

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Table 14-3 Compensation Levels for Firms using Salary Plus Incentives, 1996

Total

Salary Incentive Compensation Position ($000) ($000) ($000)

Top Sales Executive $91.2 $31.5 $122.7 Regional Sales Manager 69.0 23.3 92.3 National Account Manager 66.9 18.7 85.6 District Sales Manager 61.8 22.0 83.7 Key Account Rep 54.6 16.6 71.2 Senior Sales Rep 45.1 23.2 68.3 Intermediate Rep 34.6 16.1 50.7 Entry Level Rep 28.8 10.9 39.8

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Table 14-2 Comparing Gross Margin Commissions on Two Orders

Percentage Size Gross Percentage Commission Order Gross Margin of Margin to Commission on Paid to Number on Each Order Order Company Gross Margin Salesperson

1 10 $1,000,000 $100,000 15 $15,000