SALES FORCE

MANAGEMENT
MKT 205
Main references
Joseph F. Hair (Jr.), Rolph E. Anderson, Rajiv Mehta, Barry J. Babin (2020) Sales Force
Management, Wiley.
Sales Force Management 2017 by Gregory A. Rich &

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 CHAPTER 11
SALES FORCE COMPENSATION

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 Introduction

What are sales force compensation plans?

How should sales force compensation plans be developed?

What are the advantages and disadvantages of different compensation methods?

What are the trends in sales compensation?

What are expense accounts and fringe benefits?

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 Sales Force Compensation Plans
Compensation is defined as “all monetary payments and benefits used to remunerate employees for
their performance.”

As extrinsic rewards, compensation plans and financial packages are recognized as the greatest
motivator of salespeople.

1. Methods of 2.
Compensation
Straight salary Straight commission

3.
Combination

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 Sales Force Compensation Plans
Another way of
looking at Types of Sales Compensation Plans
compensation plans is Nature of Reward
based on the nature Non-Incentive Based Incentive Based Benefits Based
of the reward.
Hourly wage Straight commission Health insurance

Along with examples Straight salary Performance bonus Dental insurance

of each that are
shown in the table, Merit Pay Pension plans
compensation plans
Profit sharing Social security
are:
Pay-for-knowledge
1. Incentive based
Stock options
2. Non-incentive
Flexible pay compensation
based, and
3. Benefit based Combination
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Eg.Building Blocks for a Sales Compensation Plan

Others
Profit sharing Others
Pension Entertainment
Profit sharing Moving expenses Company car
Bonus Insurance Lodging
Salary Commission Paid vacation Travel
Security Incentives Benefits Expenses

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 Variable Pay Compensation Systems

The importance employees assign to

rewards and reward preferences are
known to differ due to:
1. Changing needs
2. Career stage, and
3. Organizational level

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 Types of SalesPerson
Creatures of habit—They try to maintain their standard of living by earning a
predetermined amount of money.
Goal-oriented individuals—They prefer recognition as achievers by peers and by
superiors and tend to be sales-quota-oriented, with money serving mainly as a
by-product of achievement.
Satisfiers—They perform just well enough to keep their jobs.
Trade-offers—They allocate their time according to a personally determined ratio
of work and leisure that is not influenced by opportunities for increased earnings.
Money-oriented individuals—They seek to maximize their earnings. These people
may sacrifice family relationships, personal pleasures, and even health to increase
their income.

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 Developing The Compensation Plan

The seven distinct stages in the process of developing a

compensation plan include:

3. 4.
1. 2.
Determine Develop 5. 6. 7.
Prepare Establish
General the Pretest Administer Evaluate
Job Specific
Levels of Compensation the Plan the Plan the Plan
Descriptions Objectives
Compensation Mix

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 Developing The Compensation Plan

1. Preparing Job Descriptions

Develop meaningful job descriptions before they can develop a compensation plan.

Systematically compare job descriptions—including responsibilities and performance criteria—

to other sales positions in terms of their importance to the organization.

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 Developing The Compensation Plan
2. Establish specific objectives
Compensation plans are designed to achieve
organizational objectives, such as:
a. Larger market share
b. Higher profit margins
c. Introducing new products or services
d. Winning new accounts, or
e. Reducing selling costs

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 Developing The Compensation Plan
Features of Good Compensation Plans
Standpoint of the Firm

Control: Economic: Motivational: Simplicity:

Over how For To administer,
Balancing
salespeople sales costs salespeople to explain, and
allocate their time and increase effort flexible to adjust
sales results

Features of Good
Compensation
Plans

Reward for
Income
Superior Fairness
Regularity
Performance

Standpoint of Sales Representatives

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 Developing The Compensation Plan

3. Determining General Levels of Compensation

Compensation should be competitive to attract and retain competent salespeople

Basic pay level should be based on:

a. Skills, experience, and education required for the job
b. Income for comparable jobs in the company
c. Income for comparable jobs in industry

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 Developing The Compensation Plan

4. Developing the Compensation Mix

Six factors for developing the compensation mix:

a. Costs for alternative compensation mixes
b. Proportion for salary
c. Proportion for incentives
d. Fixed, progressive, or regressive incentives
e. Splitting commissions, and
f. Types of incentives

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 Developing The Compensation Plan
a. Costs for Alternative Compensation Mixes
 Straight-commission plans are most efficient at lower sales volume levels.
 Shift from commissions to salary at higher volumes

b. Proportion for salary

 Salaries should enable salespeople to meet living expenses.

c. Proportion for Incentives

 Commission and bonus are based on achieving a sales quota.

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 Developing the Compensation Mix

d. Fixed, Progressive, or Regressive Incentives

 Fixed commissions do not offer incentives for higher sales.

 Progressive incentive rates step up the percentage of commission or bonus awarded as sales
volume grows past designated levels.

 Regressive incentives decline as sales increase (used if there are windfall sales and a
propensity to overload customer inventories).

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 Developing the Compensation Mix

e. Splitting Commissions
 If two or more salespeople worked on closing a sale, the commissions should be split.

f. Types of Incentives
 Different incentives offered to salespeople are:
1. Supplemental life insurance
2. Supplemental medical insurance
3. Low- or no-interest loans
4. Business-class air travel

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 Developing the Compensation Mix

5. Pretest the Plan

Managers must pretest and evaluate any compensation plan before adopting it in one or
more sales divisions.

A committee of key employees should help develop, approve, and implement any proposed
new plan.

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 Developing the Compensation Mix

6. Administer the Plan

A compensation plan should be fair, easy to understand, simple to calculate, and flexible.

As market conditions and organizational objectives change, the plan may need to be
altered.

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 Developing the Compensation Mix

7. Evaluating the Plan

Sales managers should continually evaluate the plan’s potential for:

a. Attracting desirable people
b. Retaining salespeople
c. Motivating salespeople

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Dis-advantages -Straight Commission

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Advantages -Straight Commission

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Combination Plan Advantages and Disadvantages

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 Expense Accounts and Fringe Benefits

Expense accounts enable sales representatives

to carry out necessary selling activities,

Fringe benefits help provide them with personal

security and job satisfaction.

The costs associated with supporting salespeople

in the field include:
1. Meals
2. Travel (air, train, auto)
3. Auto Rental, and
4. Lodging

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 Designing the Expense Plan
A well-designed expense plan requires the following building blocks:

1.
Flexibility

5. 2.
Affordability Designing the Equitability
Expense Plan

4. 3.
Simplicity Legitimacy

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 Controlling Expenses Through Reimbursement
For controlling expenses through reimbursement, sales managers can
use three basic reimbursement plans that include:

1. Types of 2.
Unlimited Reimbursement Limited Reimbursement
Reimbursement Plans
Plans Plans

3.
Combination Reimbursement
Plans

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