3/2/991 Compensation

2 zFacts & Figures zPlanning zMini-cases zSummary

3 Facts & Figures

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5 Facts & Figures: Average Compensation

6 Sales Force Compensation Study by Dartnell Corporation, 1992

7 Facts & Figures: Travel & Entertainment

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9 Setting the Pay Level zPay the prevailing rate? zPay a premium? zPay below the typical rate?

10 Assess the firm’s marketing and sales objectives, and current performance of the sales force Determine aspects of job performance to be rewarded (desired instrumentalities) Assess personal characteristics of salespeople and their valences for alternative rewards Determine most attractive and motivating mix of rewards Decide on most appropriate level of total compensation Decide on form and % of incentive-Commission,Bonus, Contest (short-term incentive awards) Communicate the program to the sales force Do analysis to determine the cost of program under various scenarios/ modify plan if necessary. Steps in Designing Compensation Programs

11 What’s on the Menu? zCommissions zBonuses zContests zSalary

12 Commissions zStraight Commissions: yExamples: Door-to-door (Mary Kay, Tupperware, etc) commissions of 25-50% of sales yExamples: Retail sale of automobiles & trucks commissions on gross margins yExamples: life insurance, real estate, stock brokerage, printing & wholesalers, 5-14% of sales

13 Commission zWhen it’s commission + salary y39% of firms establish a commission threshold yprogressive commission rates- higher rate as sales go higher ydifferent commission rates on different products

14 Pay-out details yWhen? xdraw xmonthly xover several months (cash flow) xwhat about contract type business- anything for just getting the contract? yOn what? xNet margin- need to train reps; credibility xGross margin- ditto xSales- who controls pricing?

15 Bonus zHow to set these up? yPerformance measures: output or input? yPay-out for achievement of goals ySet the goals: xfor each individual (quota like) xcompany level- matrix (a little less quota like)

16 Pay-out Matrix (example)

17 Contests zContests: you want to encourage the “average” rep to expend extra effort since the top reps are doing that already ylots of prizes (typically half of the sales people eligible win some sort of prize) yoften have themes yprizes are often theme related; or cash; merchandise; trips; points for catalog purchases ymay ‘borrow” sales from the future and be expensive to administer

18 Recognition Programs zUsually based on annual performance (or even longer) zHewlett-Packard Examples yThe 100% club- team-building & recognition program for achieving 100% or more of quota yAchiever’s Club- weekend vacation for two for the top 10-20% of reps in each region yPresident’s Club- top 100 performers in sales organization; 85 reps, 15 managers. Based on sales performance, customer satisfaction, resource management, sales planning, teamwork, leadership, enthusiasm, and being a role model.

19 Administrative Issues zManageable- costs/resources/frequency zEasy to understand- for reps & managers- know where the numbers/criteria are coming from zSensitivity analyses- what happens if??? yEspecially important with new products

20 Time for the mini-cases: zWhat do you recommend and why?

21 Summary zThere are many options available… zFirst, figure out what you want to reward zChoose measurable and communicable metrics zKeep in mind the cost of administrating and what could happen given shocks to the system