Chapter 12
compensating salespeople
Compensation objective
_ compensation is one of the most important
motivating and retaining field salesperson
_ sales force compensation is a cost that
can be quickly spiral out of control if the
compensation plan is design improperly
Compensation objective
So the useful tool to translate company
objectives and desires of salespeople into
an appropriate compensation plan is to
consider the customer product matrix
The Customer-Product Matrix
Customer
New
Convergence
Selling
New Business
Development
Current
Account
Management
Leverage
Selling
Current
New
PRODUCTS
Compensation methods
combination plan : combine salary with
some types of incentives (like bonus and
commission ) managers used these
incentives for intermediate level of
salespeople
Straight salary
_ Involves paying a fixed amount each pay
period .
Advantages :
1. More control over wages level
2. Allow maximum control over sales
people activities
Limitations :
1. Salary don’t provide strong incentives for
extra effort.
Straight salary
2. Salaried employees required supervision
3. This method overpay the least productive
members of sales team
Application :
1. In competitive environment
2. when team selling is important
3. sales of complex products
4. When product are resold through
advertisements
Straight commission
_ salespeople on commission are paid a
percentages of the sales or gross profit
they generate
Advantages :
1. Foster independence of actions
2. Maximum incentives
Straight commission
Limitations :
1. Little control over commission people
2. Turn over when business conditions are
too bad
Application :
1. When maximum incentives is needed and
minimum post sale service
Salary +Bonus
- Used to provide representatives with
income security while the bonus gives
added incentives to meet company
objectives .
_ Bonus : are discretionary payment for
reaching specific goals and are paid
annually
Salary +Bonus
Advantage:
1. Balance the need to control selling
expense and provide extra rewards
2. lower turnover
Limitations :
1. In some firm the size of bonus is so
arbitrary
2. Deals with the relation between
performance and rewards
Salary + commission
_ to give a salespeople a push needed to
sell complex products and services
Advantages :1. Commission rate can be adjusted to
promote the sale of individual products
2. Paid monthly
3. Discourage salespeople to leave the
company
Salary + commission
Limitations :
Expensive and costly to administer
Application :
In industries where business fluctuate with
seasonal or economical cycles
Salary + commission +Bonus
_ the most comprehensive plan combine the
stability of the salary , the incentives of a
commission and special rewards of
bonus
Advantages :_
1. Allow manager to reward everyone
2. Allow to design different plan to appeal
salespeople needs
3. Earn more money
Salary + commission +Bonus
Limitations :This method is too complex
Application:
Industries such as electronics and business
services .
Commission +Bonus
Combines the incentives of a commission
and a special rewards for meeting firm’s
objectives
Advantages :
1. Easy to understand
2. Simple to administer
3. Similar cash flow benefit
Commission +Bonus
_Limitations :
Perceived equity of the year end bonus
that’s mean a typical high performing
sales person become frustrate when he or
she sees that top salesperson receive
larger year end bonus
_Application :
Suited to companies which use independent
sales Rep .
Conclusion for these methods
So company recognize that compensation
plans are than just a way to pay people for
their service they become everything from
recruiting tool to culture driver .
Customer satisfaction and sales
force compensation
_ The concept of TQM focus on delivering
high quality products & making sure
customers are satisfied
Team selling plan
Team selling : involves two sale persons in
separate territories need to coordinate
their activities and work together to
complete the sale
The customer demand and the complex of
business environment making team selling
is more common
Profit based commission
The main objective of compensation
program is to provide direction to sales
force to achieve business objectives .
In the profit based commission company
and salespeople share the same pool of
money (Gross margin) both are interested
in maximizing the amount .
Setting pay level
• Beyond the issue of what plan to use is
the question of how much to pay ???
_ so we have to determine the appropriate
level of wages to pay sales people .
_Availability of qualified people in the labor
market