13-1 salesperson compensation and incentives 13. salesperson compensation and incentives 13-2...
TRANSCRIPT
13-1
Salesperson Salesperson Compensation and Compensation and
IncentivesIncentives
1313
13-2
SALESPERSON COMPENSATION AND INCENTIVES
Learning Objectives
• Understand the effective use of sales contests, as well as the potential pitfalls of their use
• Identify key nonfinancial rewards and how and why they might be important
• Recognize key issues surrounding expense accounts in relationship selling
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SALESPERSON COMPENSATION AND INCENTIVES
Learning Objectives
• Describe how to make compensation and incentive programs work
• Discuss making decisions on the mix and level of compensation
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SALESPERSON COMPENSATION AND INCENTIVES
• Which compensation method is most appropriate for motivating specific activities in specific situations?
• How much of the total compensation should be earned through incentives?
• What is the best mix of financial and nonfinancial compensation and incentives?
Three Key Compensation Questions
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SALESPERSON COMPENSATION AND INCENTIVES
Key Definitions
• Salary – a fixed sum of money paid at regular intervals
• Commission – a payment based on short-term results, usually a dollar or unit sales volume
• Bonus – a payment made at management’s discretion for achieving or surpassing some set level of performance
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SALESPERSON COMPENSATION AND INCENTIVES
EXHIBIT Compensation Methods for Salespeople13.3
Compensation Method
Especially Useful For
Advantages Disadvantages
Straight Salary New sales reps
New sales territories
Many required nonselling activities
Maximum security
Control over reps
Easy to administer
Predictable expenses
No incentive
Requires close supervision
Selling expenses remain same during sales declines
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SALESPERSON COMPENSATION AND INCENTIVES
EXHIBIT Compensation Methods for Salespeople13.3
Compensation Method
Especially Useful For
Advantages Disadvantages
Straight Commission
Highly aggressive selling
Minimal required nonselling tasks
When company can’t closely control sales force
Maximum incentive
Managers can encourage sales of certain items
Selling expenses relate directly to selling resources
Little security
Little control over reps
Reps may provide inadequate service to smaller accounts
Selling costs less predictable
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SALESPERSON COMPENSATION AND INCENTIVES
EXHIBIT Compensation Methods for Salespeople13.3
Compensation Method
Especially Useful For
Advantages Disadvantages
Combination Similar sales potential across territories
When company wants to offer incentive but maintain some control
Some security
Some incentive
Selling expenses vary with revenue
Manager has some control over nonselling activities
Selling expenses are less predictable
May be difficult to administer
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SALESPERSON COMPENSATION AND INCENTIVES
Combination Plans
• Offer a base salary plus some proportion of incentive pay
• Most popular form of compensation
• Well-suited for relationship selling by compensating for nonselling activities while providing incentives to motivate sales
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SALESPERSON COMPENSATION AND INCENTIVES
Design Questions for Combination Plans
• What is the appropriate size of the incentive relative to the base salary?
• Should a ceiling be imposed on incentive earnings?
• When should the salesperson be credited with a sale?
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SALESPERSON COMPENSATION AND INCENTIVES
Design Questions for Combination Plans
• Should team incentives be used? If so, how should they be allocated among team members?
• How often should the salesperson receive incentive payments?
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SALESPERSON COMPENSATION AND INCENTIVES
Sales Contests• Short-term incentive programs designed to
motivate to accomplish specific sales objectives
• Contest winners receive prizes, recognition, and a sense of accomplishment
• Successful contests require:• Clearly defined, specific objectives• An exciting theme• Reasonable probability of rewards for all• Attractive rewards• Promotion and follow-through
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SALESPERSON COMPENSATION AND INCENTIVES
Criticisms of Sales Contests
• May not produce lasting improvements
• Salespeople may borrow sales from another period to increase sales during the contest period
• Poorly administered contests can hurt cohesiveness and morale
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SALESPERSON COMPENSATION AND INCENTIVES
Nonfinancial Rewards
• Recognition is an attractive reward because it makes a salesperson’s peers and superiors aware of outstanding performance
• Effective recognition programs: • Offer everyone a reasonable chance of
winning• Recognize the best performers across
several dimensions
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SALESPERSON COMPENSATION AND INCENTIVES
Expense Account Types
• Direct reimbursement – direct and unlimited reimbursement of all “allowable and reasonable” expenses
• Limited reimbursement – either sets expense limits by-item or provides predetermined lump sum
• No reimbursement – requires salespeople to cover all expenses; usually combined with higher total financial compensation plan
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SALESPERSON COMPENSATION AND INCENTIVES
leadership 13.2
• Successful compensation plans must clearly link performance to rewards
• To fix a poor compensation plan:• Clean up the jobs• Three’s the magic number• Exclude inappropriate measures• Hold supervisors accountable• Tighten sales credit rules
Simplify Your Pay Programs
Source: David Cichelli, “Dumb Down Your Pay Programs,” Sales & Marketing Management, September 2003, p.88.
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SALESPERSON COMPENSATION AND INCENTIVES
leadership 13.4
• Three clues your quota system ISN’T working:
• 1. Nobody makes goal
• 2. There are no overachievers• 3. Only superstars make goal
Is Your Quota System Working?
Source: Julia Chang, “Numbers Crunching,” Sales and Marketing Management, February 2003, p. 49.