compensation 11

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Salesperson

Compensation andIncentives


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McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc !ll rights7-2


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Key Defnitions

• Salary – a fxed sum o money paid atregular intervals

• Commission – a payment based onshort-term results, usually a dollar orunit sales volume

• Bonus – a payment made at

management’s disretion or ahievingor surpassing some set level operormane


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Compensation !ethods orSalespeople

CompensationMethod

EspeciallyUseful For

Advantages Disadvantages

Straight Salary New sales reps

New salesterritories

Many requirednonsellingactivities

Maximum

securityControl overreps

Easy toadminister

Predictableexpenses

No incentive

Requires closesupervision

Sellingexpensesremain same

during salesdeclines


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CompensationMethod



Straight

Commission

ighly

aggressiveselling

Minimal requirednonselling tas!s

"hen company

can#t closelycontrol sales$orce

Maximum

incentiveManagers canencourage saleso$ certain items

Selling

expenses relatedirectly to sellingresources

%ittle security

%ittle controlover reps

Reps mayprovideinadequate

service tosmalleraccounts

Selling costsless predictable


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CompensationMethod



Combination Similar sales

potential acrossterritories

"hen companywants to o$$erincentive but

maintain somecontrol

Some security

Some incentive

Sellingexpenses varywith revenue

Manager has

some controlover nonsellingactivities

Selling

expenses areless predictable

May be di$$icultto administer


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Combination "lans

• #$er a base salary plus someproportion o inentive pay

• !ost popular orm o ompensation

• %ell-suited or relationship selling byompensating or nonsellingativities &hile providing inentivesto motivate sales


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Design 'uestions or Combination"lans

• %hat is the appropriate si(e o theinentive relative to the base salary)

• Should a eiling be imposed on inentiveearnings)

• %hen should the salesperson be redited&ith a sale)

• Should team inentives be used) * so,ho& should they be alloated among team

members)• +o& oten should the salesperson reeive

inentive payments)


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Sales Contests

• Short-term inentive programs designed tomotivate to aomplish speif salesobetives

• Contest &inners reeive pri(es, reognition,and a sense o aomplishment

• Suessul ontests reuire.• Clearly defned, speif obetives• /n exiting theme• 0easonable probability o re&ards or all• /ttrative re&ards• "romotion and ollo&-through


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Critiisms o Sales Contests

• !ay not produe lastingimprovements

• Salespeople may borro& sales romanother period to inrease salesduring the ontest period

• "oorly administered ontests anhurt ohesiveness and morale


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1onfnanial 0e&ards

• 0eognition is an attrative re&ardbeause it ma2es a salesperson’speers and superiors a&are o

outstanding perormane• 3$etive reognition programs.

• #$er everyone a reasonable hane

o &inning• 0eogni(e the best perormers aross

several dimensions


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3xpense /ount 4ypes

• Diret reimbursement – diret andunlimited reimbursement o all 5allo&ableand reasonable6 expenses

• 7imited reimbursement – either setsexpense limits by-item or providespredetermined lump sum

• 1o reimbursement – reuires salespeopleto over all expenses8 usually ombined&ith higher total fnanial ompensationplan


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!ix and 7evel oCompensation

• /n appropriate mix and level oompensation should

& !aximi(e ompensation plan’s

motivational value

& Be air

& 0emain onsistent &ith frm’s resoure

apabilities

compensation 11

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