1. Part V SALES FORCE LEADERSHIP
Chapter 12:
Compensating Salespeople

2. Compensation:

3. Learning Objectives:
Balance the need for wages against company resources.
Select appropriate compensation methods.
Set pay levels.
Assemble a compensation plan.

4. Chapter Outline: Compensation objectives. Compensation methods.
Expense accounts and benefits.
Assembling the plan.
Evaluating the plan.

5. Compensation Objectives:
Acceptable ratio of costs to sales force output in volume, profit, or other objectives
Encourage activities consistent with firm’s overall, marketing, and sales force objectives and strategies
Attract and retain competent salespeople, thereby enhancing long-term customer relationships

6. Compensation Methods:
Straight Salary.
Straight Commission.
Salary Plus Bonus.
Salary Plus Commission.
Salary Plus Commission Plus Bonus.
Commission Plus Bonus.

7. Use of Compensation Plans
Percentage of Companies Using
Straight Salary 18
Straight Commission 19
Combinations Plans (63%)
Salary Plus Bonus 24
Salary Plus Commission 20
Salary Plus Bonus Plus Commission
Commission Plus Bonus 1
TOTAL
100%

8. Compensating Salespeople
Compensation Plan
Advantage
Disadvantage
Straight Salary
Reduced turnover
Simple
Easy to administer
Good when difficult to determine who made the sale
Good when service is required
Promotes long-term goals
Good during drastic business swings
Easier to transfer salespeople
No motivation
Favors unproductive sales people
High costs when sales are low

9. Compensating Salespeople
Compensation Plan
Advantage
Disadvantage
Straight Commissions
Motivational
Relates directly to performance
Unlimited income (assuming no cap)
Good for saving money on unproductive salespeople
Perceived fair
Little security
High turnover
Management has less control

10. Sales Per Person in Thousands
Comparing Salary and Commission Plans
Use of Compensation Plans
50,000
Straight
Salary
40,000
Total cost per person
(thousands $)
30,000
10% Commission
20,000
10,000
Sales Per Person in Thousands

11. Compensating Salespeople
Compensation Plan
Advantage
Disadvantage
Salary Plus Bonus
Motivational
Provide rewards for added results.
Lower turnover among sales people.
Size of the bonus is arbitrary.
Annually payments may lead to less motivation.

12. Compensating Salespeople
Compensation Plan
Advantage
Disadvantage
Salary Plus Commission.
Motivational
Relates directly to performance
Unlimited income (assuming no cap)
Promote the sales of a product or specific market segment.
Very expensive.
Costly to administer.

13. Compensating Salespeople
Compensation Plan
Advantage
Disadvantage
Salary Plus Commission Plus Bonus.
Motivational
Relates directly to performance
Unlimited income (assuming no cap)
It is a comprehensive compensation plan.
It is going to be very widely used in the future.
Complex.
Expensive to administer.

14. Compensating Salespeople
Compensation Plan
Advantage
Disadvantage
Commission Plus Bonus.
Easy to understand.
Easy to administer.
Added control over the salesperson activities.
Little security
High turnover

15. Midlevel Performing Rep
Compensation Levels for Firms Using Salary Plus Incentives
Base Salary
Bonus + Commission
$139,826
$136,403
$97,097
$82,566
$55,842
Average
Sales Rep
Poorly Performing Rep
Midlevel Performing Rep
Top Performing Rep
Sales
Executive

16. Compensation Levels by Account Relationships
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
$52,500
Mid-Level
$36,700
Entry-Level

17. Expense Accounts and Benefits:
Expense Reimbursement Programs.
Selecting Benefits.

18. Expense Reimbursement Programs:
Unlimited Plans.
Per Diem Plans.
Limited Repayment Plans.

19. Expense Accounts & Benefits
Types of Plans
Unlimited
Low supervision
Easy to abuse
Per diem
Controls costs but may restrict coverage of distant accounts
Needs constant adjusting
Limited
Can lead to wasted time on “cheat sheets”
Limits for each category

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

21. Benefits Offered by Companies
Percentage of Firms Offering
Hospital Costs
90%
Lift 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

22. Assembling the Plan: Combining the various wage elements.
Calculating the total payments.

23. Evaluating the Plan:
How it will affect salespeople’s wages and total costs?
How the compensation plan has affected the salespeople’s performance.