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Chapter - 13 Sales Force Compensation

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Learning Understand theObjectives concept, definition, and types of


compensation Explain the basic features of sales force compensation plan Comprehend the factors affecting the compensation plan designed for a sales force Understand the insights of requirements and the aims of the compensation plan Understand the characteristics of sales force compensation plan from strategic perspectives Understand the steps in developing the compensation plan Recognize different methods of compensation and their advantages and disadvantages Explain the role of non-financial compensation for sales 2
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Definition of Compensation

Agarwala (2007) defined compensation as the sum total of all forms of payments and rewards provided to the employees for performing tasks to achieve organizational objectives.

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Organizational Rewards

Ingram et al. (2007) categorize organizational rewards into two categories:


Compensation rewards
Financial Non-financial

Non-compensation rewards
Non-monetary like healthy job environment

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Features of Compensation
Management. Fairness. Motivation. Flexible. Competitiveness. Cost.

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Factors Influencing Compensation Plans


Internal factors. External factors.

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Internal Factors
Financial ability. Compensation policies. Recruitment and selection policy. Promotional policy. Job descriptions. Job evaluation. Employers designation and position. Employees relative contribution.

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External Factors
Compensation policies in the industry. Legal conditions. Economic conditions. Market competition. Trade unions. Global considerations.

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Aims of a Good Compensation Plan


To increase enthusiasm and motivation. To instill a sense of commitment. To inject an atmosphere of team spirit. To develop a stable sales force. To retain efficient sales force. To co-ordinate and control sales force. To attract efficient sales people.

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Aims of a Good Compensation Plan


To increase the loyalty of sales force. To increase quality of interaction with customer. To improve the sense of confidence of customer on the sales force. To create a dedicates sales force.

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Characteristics of a Good Compensation Plan


Consistent with position and job description. Decides right compensation befitting the position. Acts as a catalyst to improve productivity. Provides satisfaction and security to sales force. Improves financial health of all stakeholders. Oxford University Press 2011

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Characteristics of a Good Compensation Plan


Does not distract the team spirit and group cohesion. Generates hearty and cordial relations. Simple to understand. Flexible so that changes can be incorporated. Variable component has direct relationship with performance.

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Characteristics of a Good Compensation Plan


Helps in retention of efficient sales force. In sync with sales and profit objectives. Acceptable to both salespeople and employers. Generates positive correlation between compensation and motivation and motivation and performance.

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Characteristics of a Good Compensation Plan


Provides direction for individual goal fulfillment. Enhances job involvement and commitment. Increases sense of belongingness of salespeople. Acts within the contours of strategic marketing plans.

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Steps in Developing Compensation Plans

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Review Job Description


Starting point of developing a compensation plan. Consider importance and volume of the jobs listed in the job description. Consider education and experience. Accurate job evaluation

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Establish Compensation Objectives


Bring equity in apportionment of remunerations. Goal-directed. Should not be rigid. Should fulfill salespersons personal goals. Pivotal aspects of objectives are:

Operations. Control. Measurability.


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Establish Compensation Levels


Right compensation for a group of salespeople belonging to a common rank. Fix an appropriate level for senior and junior salespeople. Wide discrimination should be avoided. Salespeople should be made aware of fixed part, variable part, deferred part of the compensation plan.

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Methods of Compensation
Straight salary. Straight commission. Combination plans

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Straight Salary

Advantages
Sense of security. Stability of income. Resists high turnover of sales people. Simple to understand.

Disadvantages
Restrains additional initiative. Selling expenses not related to sales volume. Equal treatment to high and low performing employees.
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Straight Commission

Advantages
Great motivator. Differentiates high and low performers. Provides unlimited opportunity to earn. Selling costs related to sales volumes.
Loss of control. Salespeople focus on easy selling items. Salespeople lack sense of belongingness. No/little attention to after-sales service.
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Disadvantages

Combination Plans
Salary and commission. Salary and bonus. Salary plus commission and bonus.

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Compensation Schemes-Non Financial Approach


Career advancement through promotion. Recognition. Selling expenses. Fringe benefits.

Medical benefits. Retirement benefits. Company stock options. Leave travel concessions. Paid vacations
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Compensation Schemes-Non Financial Approach


Perks. Sales contests.

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Strategic Compensation System (SCS)

SCS has been defined as the right selection of the compensation tool, developing it in line with the compensation objectives and application of it with an aim to attain broad strategic pursuits of the compensation.

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Goals of SCS
To distribute compensations equitably. To design compensation packages that fulfill personal and organizational goals. To correlate performance and compensation. To put control whenever performance deviates from benchmarks. To reward employees who achieve set standards. Oxford University Press 2011

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