Customer Satisfaction and Compensation

The Customer-Product Matrix Convergence selling New business development New Customers Account management Leverage selling Current Current New Products The Customer-Product Matrix

Compensating Salespeople Comp Type Best Performance Impact * Motivate effort on non-selling activities Salary * Adjust for differences in territory potential * Reward experience and competence Commissions * Motivate a high level of selling effort * Encourage sales success

Compensating Salespeople Comp Type Best Performance Impact * Direct effort toward strategic Incentive objectives Payments * Provide additional rewards for (Bonus) top performers * Encourage sales success Sales * Stimulate additional effort Contests targeted at specific short- term objectives

Compensating Salespeople Comp Type Best Performance Impact Personal * Satisfy salespeople’s Benefits security needs * Match competitive offers

Use of Compensation Plans Percentage of Companies Using Straight Salary 17 Straight Commission 19 Combination Plans (83%) Salary Plus Bonus 24 Salary Plus Commission 20 Salary Plus Bonus Plus Commission 18 Commission Plus bonus 1 Total 100% Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004).

Customer Satisfaction and Compensation IBM places significant resources toward monitoring customer satisfaction. All customers are surveyed annually on: Overall customer satisfaction The rep’s knowledge of the customer The transaction or solution itself How satisfied the customer is with the solution The installation process (smooth or disruptive), including how long it took The extent and clarity of the education provided The time needed to get the application(s) up and running The capability and speed of technical support

Customer Satisfaction and Compensation Results are benchmarked against prior IBM performance, as well as the competition Results are used for compensating sales reps and managers.

Compensation Levels for Firms using Salary Plus Incentives Total Salary Incentive Compensation Position ($000) ($000) ($000) Top Sales Executive $91.0 $29.0 $120.0 National Account Manager 72.2 26.0 98.2 Regional Sales Manager 74.5 21.9 96.4 District Sales Manager 64.5 20.3 84.8 Key Account Rep 57.4 22.9 80.3 Senior Sales Rep 47.5 26.0 73.5 Intermediate Rep 36.1 15.3 51.4 Entry Level Rep 29.7 13.4 43.1 Sales & Marketing Management Compensation Survey, 2005

Compensation Levels by Account Relationships, 2005 ENTERPRISE RELATIONSHIPS $121,800 Customer solution more important than price; team selling approach $64,400 $43,300 CONSULTATIVE RELATIONSHIPS $97,100 Creates new value; tailors product to customer needs $62,700 $42,300 TRANSACTIONAL RELATIONSHIPS $83,300 Sells on price; product is a commodity Top-Level Mid-Level Entry-Level $52,500 $36,700

Selecting Benefits Salespeople expect cars or allowances Insurance and travel are very common Some plans offer a choice of alternatives

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 most common in complex business selling

Compensation Methods B. Straight Commission maximum incentive all variable cost low costs when sales/salesperson is low

Compensation Methods B. Straight Commission hard to control reps low loyalty pay low when business is weak used in small firms, door-to-door, retail sales, insurance, stock brokerage, printing

Compensation Methods C. Combination Plans Most common today 1. Salary + Commission base for non-selling activities commission for incentive to push complex industrial accounts

Compensation Methods C. Combination Plans Most common today 2. Salary + Bonus base for non-selling activities bonus to reward completion of special tasks in consumer products selling 3. Salary + Commission + Bonus rewards every activity, BUT costly to administer

Benefits Offered by Companies Percentage of Firms Offering Benefit Hospital costs 90% Life insurance 77 Dental plan 69 Long-term disability 56 Pension plan 55 Short-term disability 49 Profit sharing 44 Thrift savings 22 Employees stock purchase plan 21

Compensation Methods - Recap COMP TYPES BEST PERFOMANCE IMPACT Motivate effort on non-selling activities Adjust for differences in territorial potential Reward experience and competence Salary Motivate a high level of selling effort Encourage sales success Commissions Direct effort toward strategic objectives Provide additional rewards for top performers Encourage sales success Incentive payments (bonus) Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004).

Compensation Methods - Recap COMP TYPES BEST PERFOMANCE IMPACT Stimulate additional effort targeted at specific short-term objectives Sales contests Satisfy salespeople’s security needs Match competitive offers Personal benefits Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004).