Performance Reviews & Salesperson Analysis
Topic 19
I. Why Control Procedures are Important
II. Performance Review Basics
III. Performance Measures
IV. Behavioral Based Control Systems
V. Results Oriented Control Systems
VI. Ranking Procedures
VII. Simplicity & New Business
VIII. Evaluating & Compensating Sales Teams
I. Why Control Procedures are Important
Identifying criteria required for sales success and effectively incorporating them into the control and reward system is a critical part of sales managers’ jobs. If this is not done properly, salespeople will be directed to activities that are not the best for the firm and/or morale and motivation will suffer.
Improperly designed control and reward systems also are a great source of exposure to lawsuits.
Properly designed systems motivate and reward salespeople to meet the company goals. Sanctions (including firing) should also be clearly written.
Overall:
1] There should be clear goals for the sales force.
2] These goals should be tied to the overall sales and marketing strategy.
3] These goals should be clearly written and signed by the sales manager and each salesperson.
4] These goals and policies should be in writing and part of the firm's policies and procedures.
5] Rewards and punishments should be clear and directly tied to the goals.
Does this mean that goals and policy cannot change? Of course not. These changes should also be in writing and signed. By doing this, management makes it clear what the "rules of the game are" and the rewards and punishments for following the rules of the game. If the rules are clear and consistently followed, morale will be helped and performance enhanced.
This should be done well before the control system is designed. When the sales force goals are determined and the compensation system put into place, the difficult questions should have been answered.
For the sales manager this means identifying the sales activities most important to success and clear performance measures of these activities. The annual review is the time that most firm's review goals and performance (and hand out bonuses and raises).
Evaluation is complex. Some sales activities are easy to measure and others are more difficult. Many tasks need to be completed which also means that weights have to be assigned for each task. When what management says differs from what management does, the process becomes a farce.
No policy manual can cover everything
II. Performance Review Basics
Most reviews are annual. Some firms (especially those on straight salary) will have quarterly or semiannual reviews. Recruits are generally reviewed more frequently. People with poor performance can be put on an accelerated review schedule (every 30, 60 or 90 days). Salespeople on commission get frequent reminders of how well they are doing usually have no need of performance reviews done more than once a year.
Performance reviews require the sales manager to be both a judge (what the salesperson did right and wrong) and a coach (what the salesperson can do to improve).
Sales managers are required to determine:
- Who should receive raises and bonuses
- Who should be hired and promoted

- Who needs retraining
- What subjects should be emphasized in training classes
- Who should be fired.
Sales managers are required to sign reviews. If sales managers do not follow company procedure and the law, they can be fired and/or individually sued. If you rise in management, you will be required to be sure that your subordinate managers follow policy. Employees should be required to sign the review to ensure they got it. The company should keep the original. The manager and the employee each get a copy.
If you cannot judge people and (if necessary) fire people, don't accept promotion into management.
Reviews are unpleasant tasks. Top management must ensure they are done.
Performance Review Checklist:
1] Performance reviews should be done at least annually.
2] New hires, people on probation, and those paid 100% salary are often reviewed more frequently
3] Performance reviews must be written.
4] Reviews should be signed and dated by the manager and the employee. Employee signs that they got
the review, not that they agreed with the review.
5] HQ should get a copy. The district office keeps a copy and the employee gets a copy.
6] Managers must review people in similar positions in an equitable manner.
7] For best results, managers should be judges and coaches.
8] Some sales managers must be forced to perform reviews.
III. Performance Measures
Salesperson performance measures are of two general types, outcome based systems and input based systems. The information necessary to make these evaluations comes from company sales records, call reports, expense reports, sales quotas/goals, the policy manual and individual management observation. Other sources such as customer complaints or surveys are also occasionally done.
Most firms use a mixture of outcome and input based measures, but outcome measures have the greatest weight. Outcome based measures are the most commonly used. Performance measures are most common for commission salespeople, input measures for straight salary salespeople.
A. Outcome Based (Performance) Measures – are measures of results. They can include sales by product/customer, sales to quota, sales to sales potential, sales growth, number of new accounts, sales to expenses, and/or gross margin on sales. Outcome measures are easy to measure. They are easy to communicate to salespeople. They are the most commonly used sales force performance measures.
B. Input Based Measures - are measures of activities necessary to generate sales and gross margin.
They may include calls per period, number of required reports turned in, number of customer complaints, training meetings conducted, number of demonstrations. These are harder to measure and the data is not generally part of the firm’s routine accounting measures. So using input based measures takes up salesperson time and requires additional information technology requirements.
IV. Behavioral Based Control Systems
These systems are concerned with keeping track of what happens at each stage of the sales operation.
Using them requires management to closely monitor sales force activities and actively direct and intervene to improve customer relations. They tend to be more complex, take more time to use, and use more subjective factors. They are most commonly used for salaried salespeople.
A. Subjective Evaluations - are required of managers. Factors such as attitude, product knowledge, selling skills, appearance and manner, communication skills, initiative and aggressiveness, planning ability, time management etc... are some of the subjective categories evaluated. Note, these are not performances, but

subjective evaluations. Bias, halo effects and the credibility of the sales manager are critical issues when using subjective evaluations. Some subjective elements are fine as long as they are a small part of the overall evaluation.
The advantage is that these factors do influence sales and indicating shortcomings and corrective actions can improve overall sales performance. This system is really appropriate when customer service and support are critical. They often are more useful for coaching than judgment in annual reviews.
B. Using Behavior Based Systems - to use these systems requires one of two things, detailed call reports and/or detailed observation sheets by sales managers or a completely subjective decision by the sales manager. Often complex call report used by firms employing behavior based systems. They take a lot of time and a lot of paperwork.
Some firms have incorporated laptop computer systems to expedite this paperwork and to better monitor salesperson activity (internal clock and call-in features). These computer systems can simplify and expedite the paperwork, but there are considerable capital and operating expenses.
C. Management By Objectives - Salespeople and sales managers jointly set personal development goals to be met within a specified time period. Salespeople then develop an action plan to reach each goal.
Written performance appraisals during review sessions are used to assess progress towards the goal.
The logic of MBO is clear. MBO is easiest to use with performance measures. With subjective criteria, measuring performance and improvement is harder. They can require a great deal of time to employ.
MBO is always time intensive. It can work very well for motivated salespeople who are systematically attempting to improve their performance. But less motivated salespeople and salespeople who are not big on planning are more difficult to use MBO successfully.
D. Behavioral Observation Scales - focus on identifying a list of critical incidents that lead to job success. Salespeople, sales managers, and customers provide inputs for the task. Performance scales are used to assess performance on the criteria.
Behavioral Observation Scales are even less precise than MBO. The development and measurement of critical instances is time consuming and difficult to do accurately. This technique is often used in coaching for improved sales performance when sales managers accompany salespeople, but is a imprecise tool for evaluating performance under most circumstances.
V. Results Oriented Control Systems
These focus on output, usually emphasizing a few key control factors. They are easy to operate and focus on measures such as sales volume, sales growth, sales to quota, contribution profits, number of new accounts, sales to expense ratios and other measures.
They are easy to measure, easy to explain to salespeople and easy to implement. They often have some subjective factors such as "follows company procedures," "customer relation skills" and such, but these are a minor part of the overall score. Salespeople generally like results oriented systems because they are clear and equitable.
VI. Ranking Procedures
Ranking Procedures - Salesperson performance is ranked from 1 to n with n being the number of salespeople for all measures of sales performance. Then the sum total of the ranks for each salesperson are combined.
This is easy to do and can incorporate both input and output factors. However, it assumes that all criteria are equally important, and they seldom are.
Many firms use a modified version of this approach where every salesperson is scored on the same criteria and the criteria have different weights. Then the total scores are summed. Doing this overcomes some of the problems with ranking procedures.

But ranking processes cannot avoid a glaring flaw. Suppose an entire district is under-performing.
You still have a #1 performer in the district by ranking. On the other hand, you can have a district where 90% of the sales staff exceed quota by more than 25% compared to a company average of exceeding quota by 5%.
Do you really want to use ranks and “punish” a district that has overall superior performance? Do you want to reward “top performers” in underperforming districts?
VII. Simplicity & New Business
Simplicity in performance goals is a big virtue. Simple, less complicated evaluation criteria help clarify what the firm thinks is most important and evaluates sales people accordingly. Simplicity is the enemy of comprehensive evaluations.
Most times would violate this to provide a separate evaluation for new business.
VIII. Evaluating and Compensating Sales Teams
Most sales territories have an individual salesperson responsible for sales and cost control within the territory. The territory can all customers located in a specific geographic region, customers interested in a specific product line, a subset of customers within a territory, or some other structure. In these cases, the individual salesperson’s sales, costs, customer satisfaction, new account generation, etc.... are assessed and evaluated. Individuals showing superior performance have higher commissions, bonuses, and salary increases.
Because of differences in territory potential, it is often challenging to set good sales quotas. Differences in territory potential can also make it difficult to accurately evaluate and reward sales performance. This difficulties are inherent in salesperson performance reviews. But how do sales managers evaluate and compensate sales performance when the results are due to a team’s performance and not one individual’s performance?
Sometimes individual customers or territories are the responsibility of multiple salespeople composing a sales team. In other cases an individual salesperson is responsible for the territory, but their efforts depend on a sales support staff. Team selling can increase product and market knowledge by drawing on the skills of multiple people.
It is far more difficult to accurately evaluate and properly compensate sales generated by a team.
Often success has a thousand fathers and defeat is an orphan. When sales results are good every individual wants to take credit. When sales fail to reach quota every individual points the finger of blame at someone else. With team selling the problem of everyone claiming credit for success and blaming others for failure becomes endemic, especially when commissions or bonuses are involved. The problem is even more difficult when sales teams are formed and dissolved to meet short-term situations. How much bonus should Bob receive when he was involved in 4 different sales teams during the last 12 months? One survey found that only 13% of sales teams were judged to be highly effective (Michele Marchetti “Why Teams Fail” in Sales &
Marketing Management, June 1997, 91-92; “Why Teams Don’t Work in April, 1993 pg 12).
Some companies attempt to resolve this problem by paying sales staff a salary plus a bonus. The bonus is assigned based on “merit.” But determining who was really responsible for a profitable sale can be difficult for the sales manager.
There is no single good solution to this problem. Team selling is often necessary when a set of skills found across multiple individuals is needed to complete the deal and maintain customer satisfaction. But having the sales team do a group evaluation often works out poorly. Having individual members of the team evaluate every other member of the team (a circular review) has problems. These conflicts can become intense when significant bonuses and commissions are being split.
Here are a few suggestions: a] It is easier to split a lump sum of money (bonus) than it is to split a commission. b] Teams need a leader to be effective. The leader should be compensated accordingly. c] Support staff works better when there is incentive pay for better results. d] If a salesperson is assigned to a territory and that person is the person responsible for overall customer

results, then the primary commission should go to the salesperson. e] Profits are the primary goal. Thus total costs are also very important.