1. LOCTITE COMPANY DE MEXICO, S.A. de C.V.

2. Loctite Corporation
US based specialty chemical company Dominant market share  85% in 1992
In 1992, 2 main lines of products: sealants and adhesive products, for manufacturing and repairs
Organized into 4 geographical groups: North America, Europe, Latin America and Asia/Pacific

3. Loctite’s strengths « Diversity without diversification »
geographic
end use markets
product usage
product diversity
 All these elements helped Loctite continue to grow during difficult economic times
Rapid growth of the Mexican subsidiary
$3.1 million of sales in 1987, $9 million in 1992
Expected annual growth of 15% in sales and 20% in profits

4. Loctite’s Mexican subsidiary
119 employees, functional organization
The sales force is assigned to territories
Prices are set by Jose Monteiro
Very specific sales approach

5. Loctite de México’s difficulties Specificities of the Mexican market
Strong decrease in prices in Mexico because of a deflation  national turnover decreases
Costs increase four times as fast as the peso’s devaluation relative to the dollar
Increase in competition in Mexico with lower prices than Loctite
Huge increase in the competition for labor

6. Internal problem: compensation
According to José, “one of the most difficult management areas in Mexico is compensation” “If you want to grow, you must compensate your people appropriately”
José’s problems
High compensation levels compared to competition, yet high turnover  wage perception problem
Competition among salespeople in Mexico City territories

7. A complex compensation system
Compensation is dependent on performance  employees are eligible for company profit sharing and semi-annual salary increases
Employees’ superiors decide subjectively the bases for employees’ salary increases
Salespeople and managers have commissions based on individual performance
Different compensation incentive plans for salespeople, sales managers, first-line managers and the general manager

8. Different compensation plans
Salespeople
Sales managers
Commission on sales
Based on sales growth and not gross margin
Paid on bi-monthly basis
No seasonal adjustments
Objective = encourage high value-added sales
Based on sales growth
Paid on quarterly basis
Lower marginal rates of payment than for salespeople
Could represent 60% to 80% of their salary
Commission on house account sales
Sales for large OEM accounts, lower commissions to reflect lack of control of salespeople over these sales
New orders
Extra commission for first orders from new customers (one to which no sales in the last 6 months)
Achievement of SOP targets
Standards of performance ratings averaged 75-80% of maximum
Average salesperson SOP bonus = 2/3 of one month salary
Average sales manager SOP rating = above 90%
Problem = economic slowdown so 75% of the salespeople earned no commission in the first half of 1992

9. Different compensation plans
For First-line managers:
based on performance in SOP areas
SOP objectives are weighted
For the General Manager:
Bonus depends on achievement of performance (sales and profit) and financial goals. Can earn up to 40% of his salary.
Stock options if subsidiary’s performance exceeds the plan by a substantial margin

10. The issue of competition in sales territories
Mexico City area divided into 4 small territories, to which salespeople are assigned
Territories no longer respected
Competitors are less expensive so less customers
Competition among salespeople and between salespeople and distributors, who have no territories
 Sales efforts therefore duplicated
3 000 potential clients in Mexico

11. Constraints of the Mexican market which need to be taken into account
All Mexican companies must distribute 10% of their pretax income to employees based on worked days and earnings
Mexico is not a mature market so you must think on a short-term basis to calculate rewards
Competition for skilled labor is very tough

12. Key problems and possible solutions
For each type of sales activity, objectives are set in growth of volume  set objectives in growth percentage, taking into account the estimated 15% annual growth in sales
Territory problem
3000 potential customers in Mexico  assign some salespeople exclusively to potential customers, to compensate for the lack of growth on existing customers
Assign salespeople to customers, not to territories

13. Key problems and possible solutions
Turnover problem
Create incentive plan which rewards loyalty to the company
Will help develop long-term relationships with customers, which is more individually rewarding for salespeople (OB)
Controllability problem  salespeople are not responsible for economic slowdowns or the devaluation of the peso, yet these deeply affect their ability to sell, and therefore their bonuses
take economic slowdowns into account when fixing sales objectives

14. Key problems and possible solutions