.

SALES FURCE CUMPENSATIUN

OBJECTIVES

1. At the end oI this unit, you will be able to

. eIine sales Iorce compensation

3. Explain the various methods oI compensation

. &nderstand how to choose the best compensation Ior the sales Iorce



. SALES FURCE CUMPENSATIUN

Sales Force Compensation involves deciding how much successIul sales people should earn and
the portion oI the total that should be Iixed versus perIormance pay

O Total compensation depends on the complexity oI the salesperson selling tasks

O The mix between Iixed and perIormance pay depends on

O Balancing salesperson and company needs

O Type oI salesperson you wish to attract

O Salesperson inIluence on sales

O Type oI product / service sold

SALES FURCE CUMPENSATIUN {CUNT

Sales Iorce compensation involves

O Salary

O Commission

O Bonus

O Fringe beneIits

O #eimbursed expenses

1. Sales Iorce compensation plan communicates to salespeople where management wants

them to Iocus.

. Compensation plan may not change sales people`s behavior.

3. A good compensation plan loses its eIIectiveness when applied to weak or badly trained
sales Iorce

. #ewarding the salesperson speciIic actions / results most important to the company`s
success.

SALES FURCE CUMPENSATIUN {CUNT

O Some managers abdicate their sales management responsibility by rationalizing that

compensation system will direct all sales people`s behaviour

O &ltimate example: companies that compensate on 100perIormance pay

O SuccessIul sales managers re-evaluate the sales Iorce compensation every year

"uestions to be asked:

1. II you were totally reconstruct the compensation program, would it look the
same?

. In the last year, how have your products, customers, competitors, technology,
salespeople, strategy and prices changed?

3. oes the compensation program reIlect the changes?

O Increasing compensation Ior a new product or revenue growth and decreasing it on

matured products or previous revenue are acceptable adjustments

O aking a change and then reverting back will be diIIicult; like putting toothpaste back into the
tube






SALES FURCE CUMPENSATIUN {CUNT

Salary Plans versus Commission Plans

$alary

O Fixed amount oI pay per period regardless oI the recent activities or results

O hen results exceed or Iall short oI expectations, salary is adjusted but not immediately

BeneIits

O Payments are the same Ior each period, so easy to administer

O irect selling expenses remain Iixed regardless oI volume

O The exact amount required Ior salespeople compensation is known beIorehand

O Emphasizes the importance oI non-selling activities and encourages the salesperson to

engage in these activities (like aIter-sales service

ommission

O Provides an immediate reward Ior successIul perIormance

O II sales increases, salespeople make more money. II sales decreases, salespeople make
less money.

O Commission provides the sales Iorce with an incentive to work hard and earn a great deal
oI money

O Only time, energy and territory constraints limit the sales person`s compensation




SALES FURCE CUMPENSATIUN {CUNT

onuses

Excellent means oI using perIormance pay to reward positive action and

superior results

Provides an extra, deIerred reward Ior some Iorm oI outstanding perIormance

over and above the Iorecast or goal

Bonuses increase as salespeople exceed goals

ombination Plans

O Combinat ion oI salary, commission and bonus widely used Iorm oI sales
compensation

O Combination plans can be targeted to

Encourage the speciIic behaviour or action that results in an increase in sales

Eliminate the disadvantage oI straight commission or straight salary

O ack the simplicity oI a straight commission or straight salary plans

iIIicult Ior the company to administer and the salespeople to understand

Because oI the complexity, the plan can require more Irequent revision than
either straight salary or straight commission




SALES FURCE CUMPENSATIUN {CUNT

5enses Reimbursement

Expense #eimbursement Plan must be

O Fair

O Controllable

O Fast

O Simple

O Easy to understand and administer

O Flexible

Salespeople should have an economic incentive Ior controlling their expenses and Ior using
money productively and eIIiciently

O II no economic incentives exist, then salespeople can use them as additional Iorm oI
compensation

O anagement cannot ask its salespeople to pay Ior expenses

O Total compensation would be lowered to unacceptable level

SALES FURCE CUMPENSATIUN {CUNT

Fringe BeneIits
O Includes mandatory items and optional items

O Varies between 15 to 0 percent oI direct compensation

O Channel partners (distributors, brokers and independent sales representatives

O pay their own Iringe beneIits

O Some companies oIIer salespeople a choice oI Iringe beneIits and plans

O #etirement plans, proIit sharing and stock options are deIerred Iringe beneIits (increase in
value based on years oI employment

SALES FURCE CUMPENSATIUN {CUNT

O Individual written expense plans

O Each sales person should receive, sign and return their annual compensation plan

Prevents misunderstandings

Allows the sales manager and salesperson to discuss the total annual cost

O Allows a sales manager the opportunity to discuss with his or her salesperson their total
cost

. CUNCLUSIUN

ow you will be able to

O eIine sales Iorce compensation

O Explain the various methods oI compensation

O &nderstand how to choose the best compensation Ior the sales Iorce