Compensation
3/2/99 1
Compensation
Facts & Figures
Planning
Mini-cases
Summary
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Facts & Figures
Sales Costs as a % of Percentage
Revenue
All companies 6.8%
Manufacturing 6.2%
Service 13.0%
Wholesale Distribution 6.9%
Retail 6.9%
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Facts & Figures
Sales Costs as a % of Percentage
Revenue
Less than $4 million revenue 25.9%
$4 million-19.9 million 7.4%
$20 million -99.9 million 4.4%
$100 million + 1.8%
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Facts & Figures: Average
Compensation
Base Total
Entry-level $23,290 $33,790
Mid-level $39,010 $56,080
Top-level $54,590 $90,390
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Facts & Figures: Average
Compensation
Annual
Compensation
Straight Commission $74,000
Salary + incentive $55,000
Straight Salary $42,000
Sales Force Compensation Study by Dartnell Corporation, 1992
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Facts & Figures: Travel &
Entertainment
Travel Entertainment
Overall $7,390 $5,940
Manufacturing $7,390 $5,940
Service $10,990 $6,590
Wholesale $6,750 $5,780
Distribution
Retail $5,630 $5,290
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Facts & Figures: Travel &
Entertainment
Travel Entertainment
Less than $4 million $6,110 $5,630
revenue
$4 million-19.9 $7,330 $5,550
million
$20 million-99.9 $8,750 $6,470
million
$100 million + $9,740 $7,000
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Setting the Pay Level
Pay the prevailing rate?
Pay a premium?
Pay below the typical rate?
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Steps in Designing
Compensation Programs
Assess the firm’s marketing and sales objectives, and current
performance of the sales force
Determine aspects of job performance to be rewarded (desired
instrumentalities)
Assess personal characteristics of salespeople and their valences for
alternative rewards
Determine most attractive and motivating mix of rewards
Decide on most appropriate level of total compensation
Decide on form and % of incentive-Commission,Bonus, Contest
(short-term incentive awards)
Do analysis to determine the cost of program under various
scenarios/ modify plan if necessary.
Communicate the program to the sales force
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What’s on the Menu?
Commissions
Bonuses
Contests
Salary
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Commissions
Straight Commissions:
Examples: Door-to-door (Mary Kay,
Tupperware, etc) commissions of 25-50% of
sales
Examples: Retail sale of automobiles &
trucks commissions on gross margins
Examples: life insurance, real estate, stock
brokerage, printing & wholesalers, 5-14% of
sales
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Commission
When it‟s commission + salary
39% of firms establish a commission
threshold
progressive commission rates- higher rate as
sales go higher
different commission rates on different
products
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Pay-out details
When?
draw
monthly
over several months (cash flow)
what about contract type business- anything for
just getting the contract?
On what?
Net margin- need to train reps; credibility
Gross margin- ditto
Sales- who controls pricing?
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Bonus
How to set these up?
Performance measures: output or input?
Pay-out for achievement of goals
Set the goals:
for each individual (quota like)
company level- matrix (a little less quota like)
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Pay-out Matrix (example)
0-2.5% 2.5-5% 5-7.5% >7.5%
30% $850 $2000 $3500 $6000
$750 $1800 $3250 $5000
25%
20% $650 $1600 $3050 $4000
$550 $1600 $2850 $3500
15%
$450 $1600 $2750 $3500
10%
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Contests
Contests: you want to encourage the “average”
rep to expend extra effort since the top reps are
doing that already
lots of prizes (typically half of the sales people
eligible win some sort of prize)
often have themes
prizes are often theme related; or cash;
merchandise; trips; points for catalog purchases
may „borrow” sales from the future and be expensive
to administer
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Recognition Programs
Usually based on annual performance (or even
longer)
Hewlett-Packard Examples
The 100% club- team-building & recognition program
for achieving 100% or more of quota
Achiever‟s Club- weekend vacation for two for the
top 10-20% of reps in each region
President‟s Club- top 100 performers in sales
organization; 85 reps, 15 managers. Based on sales
performance, customer satisfaction, resource
management, sales planning, teamwork, leadership,
enthusiasm, and being a role model. 18
Administrative Issues
Manageable- costs/resources/frequency
Easy to understand- for reps & managers-
know where the numbers/criteria are
coming from
Sensitivity analyses- what happens if???
Especially important with new products
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Time for the mini-cases:
What do you recommend and why?
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Summary
There are many options available…
First, figure out what you want to reward
Choose measurable and communicable
metrics
Keep in mind the cost of administrating
and what could happen given shocks to
the system
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