Sales Force Compensation & Evaluation

Group members: Khushboo Pandey Ravindra Prasad Yadav Akshay Shinde Aarti Shriwastav

Compensation Defined

Something given or received as an equivalent for services Compensation in the global market is an extremely important managerial area This is because the compensation plan: Helps attract potential salespersons Impacts a salespersons motivation Is a determinant of status and value Determines lifestyle and purchasing power

Compensation Plans
Hard to compare compensation plans because of their differences
Lower salary, but higher deferred components Cannot simply transfer a compensation plan from one culture to another
What works in one culture will not work in another!

Compensation should motivate sales force to accomplish goals set by management

Compensation may be changed to meet firm goals

Three Types of Compensation Plans

Straight Salary Straight Commission Combination Plan

Straight Salary
Salesperson paid a set amount of money based upon hours or days worked Often adopted when salesperson must devote significant amounts of time to other duties Simple to administer by sales manager But, no direct link between performance and reward! is simplest compensation plan. Salesperson receive fixed sums as regular intervals(usually each week or month sometimes every 2 weeks), representing total payments for their services. Such plans are more common among industrial- goods companies than among consumer- goods companies.

Straight Commission
Adopted by performance-oriented firms that pay salesperson for their achievements Each person is paid a percentage of their total sales Easy to evaluate performance Plans encompass an element of insecurity Not believed acceptable in some cultures, like EU Some evidence of acceptance in Japan Can lead salesperson to shirk duties or pressure customers to buy The theory supports the individual sales personnel should be paid according to productivity. As sales volume rises to different levels, the commission rates differ for different products, categories of customers, or during selling seasons. This method is common in the clothing, textiles & shoe industries & in drug * hardware wholesaling. Firms selling intangibles, such as insurance & investment securities, manufacturers of furniture, office equipment & business machines also are frequent users of straight- commission plans.

Combination Pay Plan

The combination plan is the most popular
Employed by more than 80% of US firms May appear in many forms:
Salary, commission, individual and group bonuses

Motivation introduced by commission/bonus Salary plus commission- Most sales compensation plans are combinations of salary & commission plans. By a judicious blending of the two basic plans, management seeks both control & motivation. Actual results depend upon managements skills in designing &

Ethical Compensation Issues

Major dilemma hire the best salesperson for the lowest possible salary. Other dilemmas include: Pay at, below or above market salaries? Assigning lucrative sales territories? Team vs. individual incentives? Frequency of paying commission? Pay discrimination?

Purposes of Salesperson Performance Evaluations

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. To ensure that compensation and other reward disbursements are consistent with actual salesperson performance To identify salespeople that might be promoted To identify salespeople whose employment should be terminated and to supply evidence to support the need for termination To determine the specific training and counseling needs of individual salespeople and the overall sales force To provide information for effective human resource planning To identify criteria that can be used to recruit and select salespeople in the future To advise salespeople of work expectations To motivate salespeople To help salespeople set career goals To relate salesperson performance to sales organization goals. To enhance communications between salesperson and sales manager. To improve salesperson performance

Dimensions of Salesperson Performance Evaluation

Behavioral Results

Salesperson Performance

Professional Development

Profitability

Criteria for Performance Evaluation

Behavior: Consists of criteria related to activities performed by individual salespeople
Sales calls, customer complaints, required reports submitted, training meetings, letters and calls

Criteria for Performance Evaluation

Professional Development: Assess improvements in certain characteristics of salespeople that are related to successful performance in the sales job Characteristics include - Attitude, product knowledge, initiative and aggressiveness, communication skills, ethical behavior

Criteria for Performance Evaluation

Results: Salespeople measured objectively based on results such as sales, market share, and accounts
A sales quota represents a reasonable sales objective for a territory, district, region, or zone Some research shows that rewards for

Criteria for Performance Evaluation

Profitability: Salespeople have an impact on gross profits through the specific products they sell and/or through the prices they negotiate for final sale. Salespeople affect net profits by the expenses they incur in generating sales. Criteria Examples Net profit dollars

Performance Evaluation Methods

Graphic Rating/Checklist Methods Ranking Methods Objective-Setting Methods Behaviorally Anchored Rating Scales (BARS)

 Salespeople are evaluated using some type of performance evaluation form

Especially useful in evaluating behavioral and professional development criteria May be filled out by customers Disadvantage is providing evaluations that discriminate sufficiently

 Rank all salespeople according to relative performance on each performance criterion These methods force discrimination as to the performance of individual salespeople May be complex
Rankings only reveal relative performance evaluation

Management By Objectives (MBO)

1. Mutual setting of well-defined and measurable goals within a specified time period. 2. Managing activities within the specified time period toward the accomplishment of the stated objectives. 3. Appraisal of performance against

 Links behaviors to specific results Salespeople are used to develop performance results and critical behaviors Positive feedback about behaviors may be more affective than positive output

Performance Evaluation Bias

Occurs when a managers evaluation of a salesperson is affected by considerations other than the specified criteria Common sources of bias: Personal relationships Perceived difficulty of territory Outcomes (i.e., ends justifies the means)