TYPES OF COMPENSATION PLANS

Straight Salary Plan

Fixed sum at regular intervals total payments for their services Common amongst industrial goods companies; jobs requiring extensive missionary / educational work; jobs including servicing and providing technical & engineering advice; salespersons doing considerable sales promotion / non-selling work; trade selling order-taking salespersons Provides strong financial control over sales personnel and management can direct their activities along most productive lines with minimum opposition. Provides stability of income & freedom from financial uncertainties to the sales personnel Since there are no monetary incentives many sales people
end up doing just an average job.

Straight Commission Plan

Sales persons paid according to their productivity sales volume is usually considered the best productivity measure

Straight commission with sales personnel paying their own expenses OR company paying their expenses
Advances may OR may not be paid against earned commissions Progressive or Regressive changes in rates of commissions as sales volume rises to different levels Different commission rates for different products OR different categories of customers OR during different selling seasons Provides maximum direct monetary incentive to sales persons to strive for higher volumes

Contd
Means of cost control as sales compensation becomes virtually a variable expense except for traveling and miscellaneous expenses Provides little financial control over sales persons activities they give secondary importance to non-selling activities like reporting, new customer prospecting, sales promotion; avoid selling high-margin hard-to-sell products; resist reductions or change in territory etc. Costs of checking & auditing are higher Efficiency may decline due to uncertainty of income.

Combination Salary & Incentive Plan

These are designed so that sales personnel can have both the security of stable incomes and the stimulus of direct financial incentives Greater cooperation from the sales force and a morale booster Provides greater flexibility to management for adjustment to changing conditions Clerical costs are higher than in straight salary or straight commission plans.

USE OF BONUSES

Bonus is different from commission it is paid for accomplishing a specific task. Additional financial reward for achieving results beyond a predetermined minimum. Never used alone but in combination with one of the three compensation plans.

FRINGE BENEFITS
Do not bear direct relation to job performance.
Given to all employees - some of these benefits are required by law. Range from 25 to 50 % of the total sales compensation package. Contribute to safety & security needs and some to fulfillment of esteem & higher order needs.

MANAGING EXPENSES OF SALES PERSONNEL

General Expense Ratios Compensation : Company Sales 0.4 to 8.2 %

Expenses : Company Sales

0.2 to 1.6 %

Total Sales Force Expenses : Company Sales 1.1 to 10.4 % Expenses : Total Sales Force Expenses 9.3 to 33.3 %

Sales Expenses covering traveling, lodging, meals & entertainment in most industries varies from 25 % to 50 %.
Field selling expenses vary by type of pre-dominant selling style: Missionary & Trade selling styles are lower as entertainment is not involved . Technical & New Business require long calls on large customers as well as entertainment thus making this type of selling more expensive.

Degree of formal control over sales expenses varies from company to company.

Keeping expenses within certain bounds is important on one hand whereas a degree of liberality is desirable to ensure sales personnel do not fail to capitalize on market opportunities due to lack of adequate funds.

REIMBURSEMENT OF SALES EXPENSES

Sales Personnel pay their own expenses Such companies regard the sales personnel as independent businesspeople. Most of them also pay straight commission only. No expense records are necessary. Compensation levels reflect the fact that sales personnel pay their own expenses. Little management control over their route & call schedules

Reimburse sales personnel for all or part of their expenses

When expenses are reimbursable sales management needs control. Reimbursable expenses should be enough to perform assigned work in expected manner. Should take into account customary living standards of salesperson & customers, with emphasis on the latter. Should keep expenses reasonable and should be economical to administer.

METHODS OF CONTROLLING & REIMBURSING SALES EXPENSES

Flat Expense Account Flexible Expense Account Honor System Expense Quota

REIMBURSEMENT OF AUTOMOBILE EXPENSES

Flat Mileage Rates Graduated Mileage Rates Fixed Periodic Allowance Combination Fixed Periodic Allowance & Mileage Rates Runzheimer Plan

SALES MEETINGS
Important for both COMMUNICATION & MOTIVATION purposes Since sales people generally work alone, it is a good idea to hold periodic group meetings for exchanging information & ideas. Provide occasions for management to stimulate the group to improve its performance

Planning a sales meeting requires 5 major steps

A AIMS - Clearly defined objectives jokingly called excuses holding a meeting. e.g. :
New product introduction New insights into customer attitudes & behavior Application of proper sales techniques New company policies or sales goals requiring explanation Improving quality of sales reports Orienting on advertising program & coordinating tie-in activities Increasing effectiveness of time management Introducing new services inventory control.

C CONTENTS Agenda List or outline of things to be considered or done during a meeting depends to large extent on the Aims. M METHODS Local Short & participative group discussions best Regional / National 2/3 days with wider mix of aims & contents hence use a mix of different methods. EXECUTION Speakers, Seminar leaders, meeting site & time Room & seating arrangements Audio-Visual equipment & supplies, provision of materials, breaks, refreshments etc. E EVALUATION Whether meeting accomplished its aims Feedback for future program planning.

NATIONAL SALES MEETINGS

National meetings can introduce comprehensive marketing / sales policy changes rapidly & uniformly. Major executives in the company attend a national sales meeting difficult for them to attend a series of decentralized ones. Sales personnel meet counterparts from other regions & exchange experiences. Meeting Head Office personnel leads to better coordination. If factory is also located at the same place or nearby there is an opportunity for product training with exposure to manufacturing details. The costs of bringing the entire sales force to a central site are substantial. It is difficult to find convenient time to take off the entire sales force from the field unless sales are seasonal.

REGIONAL SALES MEETINGS

Head office sales executives & personnel attend the regional sales meetings reducing travel costs & loss of selling time. Focus on unique problems of the region. HO executives learn about the current problems first hand. Smaller attendance increases participation per person attending. Smaller percentage of HO / management participation depreciates the importance of the meeting in eyes of the sales force and smaller attendance also not conducive to spirit of contagious enthusiasm.

LOCAL SALES MEETINGS

Weekly or biweekly last from 15 minutes to couple of hours. Informally conducted meetings with each sales person having an opportunity to pose questions and to state personal views. Strengthen group identity.

REMOTE CONTROL & TRAVELING SALES MEETINGS

Closed-circuit television Sales meetings by telephone Sales meetings at home essentially by post / written mail Traveling sales meetings where meetings require physical props new product demonstration, displays etc. they can be done by outfitting on trucks / trailers / vans etc.