Sales Management MBA Sem 4

Case – Sales Force Incentives at Service Sales Corporation

Students are required to answer the questions given on page one of the cases.

Table A. Computation of total compensation of Senior Salesman 2 in select store types (Based
on contents of Exhibit 2 and 3)

Store Minimum Minimum No Mthly Comm Basic ( HR Fix Total

type Sale (Rs) Monthly of sale per ission Fix 10% Allo
Sales sal salespers 3% salary) of wanc
esp on bas+ e
ers Cs
ons
7 3,000,000 250,000 1 250000 7,500 1410 891 1650 11451
9 5,500,000 458,333 3 152777 4583 1410 600 1650 8243
11 15,000,000 1,250,000 5 250000 7500 1410 891 1650 11451
13 40,000,000 3,333,333 9 370370 11111 1410 1252 1650 15423
15 65,000,000 5,416,666 12 451388 13541 1410 1495 1650 18096

Table B. Fixed compensation as a Percentage of Total Compensation of Senior Salesman 2 in

select store types (Based on Table A, computed above)

Store Type Total Compensation Fixed compensation Fixed Compensation

as a Percentage of
Total compensation
7 11,451 3,060 26.7
9 8,243 3,060 37.12
11 11,451 3,060 26.72
13 15,423 3,060 19.84
15 18,096 3,060 16.90

Table C: Manager Compensation in Select Store Types

( Based on contents of Exh 2 and 3)

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 Stor Minimum Minimum Com Commi Basic HR Fix SP Total
e Sale (Rs) Monthly mi ssion
Typ Sales ssio
e n%
7 3,000,000 250,000 1.9 4,750 4,200 895 1650 0 11,495
9 5,500,000 458,333 1.3 5958 5,000 1096 1650 0 13704
11 15,000,000 1,250,000 1 12500 7,100 1960 1650 0 23210
13 40,000,000 3,333,333 0.7 23333 10,700 3403 1650 0 39087
15 65,000,000 5,416,666 0.4 21667 13,700 3537 1650 12,000 52553

Table D. Computation of total compensation of Senior Salesman 2 after SFR in select store
types ( Based on contents of Exh 2 and 7 )

Table E. Fixed compensation as a Percentage of Total Compensation of Senior Salesman 2 after

SFR in select store types ( Based on Table D , computed above )

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 Table F. Compensation of Different Categories of Star Salesmen after SFR in select Store Types
( Based on Exhibit 2 and 7 )

Table G . Fixed Compensation as a percentage of Total Compensation for Different categories

of Star Salesmen after SFR in Select Stores ( Based on Table F above )

Analysis of Exhibit 8 of the case

On comparing comparable store types of SSC ( only store types 9, 11 and 12 ) and Urban Sole
determine who is the better pay master?

Compare the percentage of Fixed remuneration of the two companies .

SSC Urban Sole

  Manager Salesman   Manager Salesman
Stor % % Stor % %
e fixed variable fixed fixed variable fixed e fixed variable fixed fixed variable fixed
9 6650 7100 0.484 3060 8391 0.2672 B3 1600 7000 0.6957 1200 3750 0.7619

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 0 0
2400 1400
11 8750 14460 0.377 3060 8391 0.2672 A3 0 14250 0.6275 0 6000 0.7
1035 3600 1440
12 0 21495 0.325 3060 11600 0.2087 A1 0 18750 0.6575 0 8750 0.622

As we can see from the table Urban Sole is a better pay master and has big portion of salary as
fixed in comparison to SSC.

Analysis of Exhibit 9 of the case

Using the calculations done by you in Table C compare the salary of Managers at Bata and SSC

Store SSC Bata

7 11495 21008
9 13704 23938
11 23210 27402
13 39087 34520

Ans: Managers at lower level stores at Bata drew more salaries in comparison to their SSC
counterparts while the trend reversed at higher levels.

Using the calculations done by you in Table F compare what (a) total compensation and (b)
percentage of fixed compensation different categories of Salesmen of a store of type 11
minimum monthly sales will earn at Bata and SSC

  Salesman 1 Salesman 2 Salesman 3

  SSC Bata SSC Bata SSC Bata
Fixed 10225 1224 9225 700 8225 700
Variable 3125 8750 3125 6250 3125 5000
Total 13350 9974 12350 6950 11350 5700
% fixed 0.7659176 0.1227191 0.7469636 0.1007194 0.7246696 0.122807
CASE SUMMARY
Case is about Sales force incentive at SSC. Amer Mohsin is appointed as COO and he looks at
the how the compensation of salesforce is arrives at. Current compensation system has presented
following problems: ‘decrease’ in motivation, as the shop location and number of salesmen were
the major determinants of what a salesperson made. Salesmen take time off at will, and help
‘cover’ for each other, as there is no way of tracking who made how many sales, system has
resulted in ST-15 stores being staffed with salespeople aged 40 and above as there is need of
younger people in these stores to make the frequent (longer) trips to the stockroom and
complaints that salesmen are making trainees leave in the first three months, to ensure that they
are not promoted to a junior salesman position and hence get a share in the commissions. COO is

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presented with Sales Force Rationalization Proposal by managers to overcome the problems of
decade old compensation system and he looks into it how it will affect sales and motivation level
of the sales force.

ANSWERS TO QUESTIONS GIVEN IN THE CASE

1. What are the main issues with the current incentive plan? And what are the main causes?

Ans: The main issue with the current incentive plan is that 90% of the compensation to the
salesmen are provided as a commission to the sales done by them. The previous COO, Omer
Saeed made some strategic supply chain management which lead to increase in the sales volume.
The business started growing over 20 percent but the same was not yielded by the company for
future expansion but instead the salesmen were enjoying compensation between Rs 18,000 to
30,000 which was way higher than the industrial standards of Rs 8,000 per month. The existing
compensation plan was implemented in the initial days of the company in order to keep
employees motivated to generate revenue for the company. But the same was never changed
over the years even though the company grew tremendously. The variable component of the
compensation should have been decreased with time as the company improved their operations
which yielded them higher returns.

The current plan also restricts the growth of business as the stores with high potential like above
ST-15 are staffed by aged employees which are not as energetic as the young performers which
are stuck in the time bound regressive promotion system where a trainee might take years to
reach the higher level shops where he could give his best.

Moreover, salesmen were making trainees leave in the first three months, to ensure that they are
not promoted to a junior salesman position and hence get a share in the commissions.

2. Given the nature of the job of a salesman at SSC, is fixed salary, or performance based
variable compensation better suited?

Ans: As we have observed in the earlier cases as well, in a sales job, performance based
variable compensation acts as a motivating factor for the employees to put in their best as it is
incentivised with corresponding remuneration. But in this case, employees must be provided
with a balance of fixed and variable compensation. We observe from exhibit 3 that for a
salesperson, both, the fixed compensation and the compensation percentage is increased from
1,310 to 1,600 and 2.5% to 3.5% respectively. Since both the component are increasing, it is
leading to unjustified disbursement of higher salaries to low level salespeople who are
incentivising on the optimisation of supply chain management.

The management should follow the similar compensation program as they are following for the
managers i.e. an increase in the fixed compensation and a decrease in the percentage of
commission.

3. As Amer Mohsin, what would you do about the SFR proposal and why? Are there other
alternatives possible? If yes, what are their pros and cons?

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Ans: As Amer Mohsin, I would accept the proposal because it would move the compensation
component more to a fixed part from the initial variable part.

Main problem would be that the sales people are motivated generally by variable that more the
sales, more would be the compensation. This change can be seen from the table A and second
table of Analysis of Exhibit 9 of the case.

Advantage would be that sales people would not force the trainees to leave the corporation at an
early stage.