The document discusses various methods for compensating salespeople, including straight salary, straight commission, and combination plans involving salary plus bonuses or commissions. It provides details on the benefits and drawbacks of different compensation types and explores trends toward using incentive payments and customer satisfaction metrics in determining compensation. Sample compensation levels from industry surveys are presented for various sales roles.

1. Professor Chip Besio Sales Management Marketing 3345 Customer Satisfaction and Compensation

2. Convergence selling Account management Leverage selling New business development New Current Customers Current New Products The Customer-Product Matrix

3. Comp Type Best Performance Impact * Motivate effort on non-selling activities Salary * Adjust for differences in territory potential * Reward experience and competence Commissions * Motivate a high level of selling effort * Encourage sales success Compensating Salespeople

4. Comp Type Best Performance Impact * Direct effort toward strategic Incentive objectives Payments * Provide additional rewards for (Bonus) top performers * Encourage sales success Sales * Stimulate additional effort Contests targeted at specific short- term objectives Compensating Salespeople

5. Comp Type Best Performance Impact Personal * Satisfy salespeople’s Benefits security needs * Match competitive offers Compensating Salespeople

6. Straight Salary 17 Straight Commission 19 Combination Plans (83%) Salary Plus Bonus 24 Salary Plus Commission 20 Salary Plus Bonus Plus Commission 18 Commission Plus bonus 1 Total 100% Percentage of Companies Using Use of Compensation Plans Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004).

7. Comparing Salary and Commission Plans for Field Sales Representatives 0 100 200 300 400 500 10,000 20,000 30,000 40,000 Straight Salary 10% Commission Total cost per person (thousands $) Sales Per Person in Thousands 50,000 Comparing Salary and Commission Plans

8. IBM places significant resources toward monitoring customer satisfaction. All customers are surveyed annually on: Overall customer satisfaction The rep’s knowledge of the customer The transaction or solution itself How satisfied the customer is with the solution The installation process (smooth or disruptive), including how long it took The extent and clarity of the education provided The time needed to get the application(s) up and running The capability and speed of technical support Customer Satisfaction and Compensation

9. Results are benchmarked against prior IBM performance, as well as the competition Results are used for compensating sales reps and managers. Customer Satisfaction and Compensation

10. Total Salary Incentive Compensation Position ($000) ($000) ($000) Top Sales Executive $91.0 $29.0 $120.0 National Account Manager 72.2 26.0 98.2 Regional Sales Manager 74.5 21.9 96.4 District Sales Manager 64.5 20.3 84.8 Key Account Rep 57.4 22.9 80.3 Senior Sales Rep 47.5 26.0 73.5 Intermediate Rep 36.1 15.3 51.4 Entry Level Rep 29.7 13.4 43.1 Compensation Levels for Firms using Salary Plus Incentives Sales & Marketing Management Compensation Survey, 2005

11. ENTERPRISE RELATIONSHIPS $121,800 Customer solution more important than price; team selling approach $64,400 $43,300 CONSULTATIVE RELATIONSHIPS $97,100 Creates new value; tailors product to customer needs $62,700 $42,300 TRANSACTIONAL RELATIONSHIPS $83,300 Sells on price; product is a commodity $52,500 $36,700 Top-Level Mid-Level Entry-Level Compensation Levels by Account Relationships, 2005

12. Salespeople expect cars or allowances Insurance and travel are very common Some plans offer a choice of alternatives Selecting Benefits

13. A. Straight Salary Control wage levels easier to control rep’s activities increases loyalty to firm fails to provide incentives high costs when sales are low most common in complex business selling Compensation Methods

14. B. Straight Commission maximum incentive all variable cost low costs when sales/salesperson is low Compensation Methods

15. B. Straight Commission hard to control reps low loyalty pay low when business is weak used in small firms, door-to-door, retail sales, insurance, stock brokerage, printing Compensation Methods

16. C. Combination Plans Most common today 1. Salary + Commission base for non-selling activities commission for incentive to push complex industrial accounts Compensation Methods

17. C. Combination Plans Most common today 2. Salary + Bonus base for non-selling activities bonus to reward completion of special tasks in consumer products selling 3. Salary + Commission + Bonus rewards every activity , BUT costly to administer Compensation Methods

18. Trend toward TEAM selling difficult to reward team members for group effort usually emphasize shared commissions / bonuses Other Considerations

19. Profit-based Commissions Gross margin commissions Salesperson & firm attempt to maximize same $$ raise wages for salespeople often at expense of company profits tends to increase industry price competition tends to raise price elasticities in the long run Other Considerations

20. Percentage Size Gross Percentage Commission Order Gross Margin of Margin to Commission on Paid to Number on Each Order Order Company Gross Margin Salesperson 1 10 $1,000,000 $100,000 15 $15,000 2 20 $500,000 $100,000 15 $15,000 Comparing Gross Margin Commissions on Two Orders

21. Marketing Plan Discounted Price % Decline Selling Price $100 $92 Cost of Goods Sold 80 80 Gross Margin 20 12 GM% Commission 20% 20% $ Commission $ 4 $ 2.40 40% Contribution 16 12 Overhead Costs 10 10 Net Profit $ 6 $ 2 66% Gross Margin Commission Problems

22. Objective -- enough, but not too much. Types of plans Unlimited Low supervision easy to abuse Per diem controls costs but may restrict coverage of distant accounts needs constant adjusting Expense Accounts & Benefits

23. Types of plan (Cont’d.) Limited can lead to wasted time on “ cheat sheets” limits for each category Expense Accounts & Benefits

24. Hospital costs 90% Life insurance 77 Dental plan 69 Long-term disability 56 Pension plan 55 Short-term disability 49 Profit sharing 44 Thrift savings 22 Employees stock purchase plan 21 Percentage of Firms Offering Benefit Benefits Offered by Companies

25. Salary Commissions Incentive payments (bonus ) Motivate effort on non-selling activities Adjust for differences in territorial potential Reward experience and competence Motivate a high level of selling effort Encourage sales success Direct effort toward strategic objectives Provide additional rewards for top performers Encourage sales success COMP TYPES Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004). Compensation Methods - Recap BEST PERFOMANCE IMPACT

26. Sales contests Personal benefits Stimulate additional effort targeted at specific short-term objectives Satisfy salespeople’s security needs Match competitive offers Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004). Compensation Methods - Recap COMP TYPES BEST PERFOMANCE IMPACT