Part V

SALES FORCE LEADERSHIP

Chapter 12:
Compensating Salespeople
Goals of a Sales Force
Reward System
Acceptable ratio of costs to sales force output
in volume, profit, or other objectives
Encourage activities consistent with firms
overall, marketing, and sales force objectives
and strategies
Attract and retain competent salespeople,
thereby enhancing long-term customer
relationships
Be clear and be flexible enough to allow
adjustments that facilitate administration
 The Customer-Product Matrix

New Convergence New Business

Selling Development

CUSTOMERS

Account Leverage
Current
Management Selling

Current New
PRODUCTS

Figure 14-1: The Customer-Product Matrix

Compensating Salespeople

Components Needs
SALARY Motivate effort on non-selling activities
Adjust for differences in territory potential
Reward experience and competence
COMMISSIONS Motivate a high level of selling effort
Encourage sales success
INCENTIVE Direct effort toward strategic objectives
PAYMENTS Provide additional rewards for top (Bonus) performers
Encourage sales success
SALES CONTESTS Stimulate additional effort targeted at specific short-
term objectives
PERSONAL Satisfy salespeoples security needs
BENEFITS Match competitive offers
Use of Compensation Plans

Percentage of
Companies Using
Straight Salary 18

Straight Commission 19

Combinations Plans (63%)

Salary Plus Bonus 24
Salary Plus Commission 20
Salary Plus Bonus Plus Commission 18

Commission Plus Bonus 1

TOTAL 100%
Compensating Salespeople
Compensation Plan Advantage Disadvantage

Salary Reduced turnover No motivation

Simple Favors unproductive
Easy to administer sales people
Good when difficult to High costs when sales
determine who made are low
the sale
Good when service is
required
Promotes long-term
goals
Good during drastic
business swings
Easier to transfer
salespeople
Compensating Salespeople
Compensation Plan Advantage Disadvantage

Commissions Motivational No loyalty

Relates directly to Little security
performance Short range view
Unlimited income High turnover
(assuming no cap) Management has
Good for saving money less control
on unproductive
salespeople
Perceived fair
Advantages of Frequent vs.
Infrequent Incentive Payments
Frequent Payment Advantages
(Monthly/Quarterly)
Salespeople receive frequent
feedback and rewards when selling
cycle is short.
Rewards are close in time proximity
to the successes that provided the
reward.
Strong link between successful
behavior and reward motivation
increased.
Infrequent Payment Advantages
(Semiannually/Annually)
Payments at bonus time are larger
and have greater impact.
Performance is more stable because
short-term sales variations are
smoothed over the longer time
horizon.
Incentives are not paid till end of
year smoother cash flow.