1. COMPENSATING SALES PEOPLE
SALES MANAGEMENT
MGT607

2. AIM: understand compensation objs & methods used in sales mgt.
OBJECTIVES: 12.1 Understand and balance the need for wages against company resources Select appropriate compensation methods 12.3 Identify the different pay levels Design and assemble a compensation plan.

3. Compensation Methods
Building a compensation program is both art & science, sales mgrs need to review.
Most compensation plans combine base salary with some incentives.
Rule of thumb use incentives are bet. 15 – 30% of total compensation.
Different types of compensation are:
Straight salary, - Straight commission
Salary plus bonus Salary plus commission
Salary plus commission plus bonus
Commission plus bonus.

4. 1.Straight Salary Mostly for non selling personnel
Involves paying a fixed amount each pay period.
Benefits- more control over wage levels & ability to easily direct sales force to non selling/revenue generating activities. provide security & steady monthly income.
Limitations- do not provide strong incentive for extra effort, require more closer supervision, can overpay least productive staff.
Application- in competitive labor env, plus where sales reps spend more time on paper work & service calls. In team selling.

5. 2. Straight Commission
A % of the sales or gross profits they generate.
Rewards for accomplishments rather than time & effort.
Ideal for those confident of adding value.
Adv- foster independence of action, max incentive. Easy to understand, simple to calculate wages. During low sales less payout. Can use on different products.
Limitations- mgrs have little control over com SP & non selling activities may be neglected. Wide variations in pay.
Application- best when max incentive is needed & when a min after sales service & missionary work is required. Many door-2-door sales, car dealers.

6. 3. Salary Plus Bonus
Used to provide reps income security & bonus add incentives to meet co obj’s.
Adv- balance the need to control selling exp & provide extra rewards for added results. Lead to lower turnover in SP. Good when buying cycles are long & reps invest time to understand customers.
Limit- in some firms size of bonus is arbitrary. Need to review sales results, customer relations, after sales service & then decide how much SP should receive. 2nd performance & reward relationship that higher performance leads to higher rewards, reduction will lead to reduction in motivation.
Application- large food manufacturers. To foster team work.

7. 4. Salary Plus Commission
To give SP the push needed to sell complex products/service. Progressive commission rates are also used.
Adv- com rates can be adjusted to intensify efforts or according to profitability of products. Can be paid monthly, spread over the year. Discourage SP to leave org.
Limit- more expensive & costly to administer. Higher than salary plus com plan. Com ceiling can dampen staff. Reps can reach ceiling early & take it easy from there on.
Application- com to motivate certain SP behaviors. Seasonal or economic cycle firms – building materials, machinery, electrical supplies, paper products.

8. 5. Salary Plus Commission Plus Bonus
Provide stability of salary, incentives of com, reward of bonus.
Adv- allow sales mgr to reward every activity performed by SP. Will become more widely used in future.
Limit- is complex in administration & expensive. More SP, mgr, HR staff time is needed for reporting & managing. Can be confusing to SP.
Application- office equip, instruments, electronics, business services.

9. 6. Commission Plus Bonus
Combines incentives of a com plus special rewards for meeting objectives.
Adv- similar to straight com plan, easy to understand & simple to administer. Cash flow benefits com paid when revenue is received & bonus at year end. Diff from straight com as bonus feature provides some control over SP activities. attractive for recruitment.
Limit- 100% risk of pay, SP may be frustrated when a high performing SP receives higher bonus than he.
Application- well suited to brokers, independent SP.

10. Customer Satisfaction & Sales Force Compensation
Concept of TQM focuses on delivering high quality products to clients & making sure customers are satisfied.
Not many firms link some portion of sales force compensation with customer service.
Firms have trouble measuring customer satisfaction.
One way is to ask customers to complete customer satisfaction surveys. Questions on SP responsiveness, integrity, problem solving, after sales service & communication skills.

11. Team-Selling Plans
Customer demand & complex environment are making team selling more common than before.
Compensating SP to accommodate team selling is crucial.
Involves 2 SP in separate territories who need to co-od their activities to complete a sale.
Also involves technical people with SP

12. Profit-Based Commissions
Objective is to provide direction to sales force to achieve business obj’s.
When incentive payments are based on % of sales of each product, it is unlikely that SP will sell the mix that will lead to highest profits.
Alternative apporach is pay commission on gross margin – co & SP share same pool of money.

13. Setting Pay Levels
After compensation method is selected next is best wage level for SP.
3 options: average prevailing wage, pay a premium, or offer less than going rate.
Premium may attract better SP & motivate.

14. Expense Accounts & Benefits
Expense Reimbursement Programs:
Unlimited plans
Per diem plans
Limited repayment plans

15. Selecting Benefits:
Can be used to attract & reward SP
Include hospitalisation, insurance, pension plans.
Assembling the Plan
Evaluating the plan