Compensating the Sales Force
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- Bridget Horton
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1 Compensating the Sales Force A Practical Guide to Designing Winning Sales Reward Programs Second Edition David J. Cichelli Me Graw Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto
2 Contents Acknowledgments Preface Introduction xiii xv xvii 1. Why Sales Compensation? 1 The Role of the Sales Force 1 Why Sales Compensation Works 2 The Power of Sales Compensation 4 Job Content The Source of Sales Compensation Design 6 Sales Jobs and Sales Process 7 Sales Compensation Paying for the Point of Persuasion ' 10 Sales Force Obsolescence and Sales Compensation 11 The Impact of Customer Relationship Management 13 Summary Sales Compensation Fundamentals 15 Variable Compensation Models 15 Income Producers versus Sales Representatives 20 About Sales Compensation Concepts 23 Sales Compensation Design Elements for Sales Representatives 23
3 VIII CONTENTS Eligibility 24 Target Total Cash Compensation 25 Pay Mix and Leverage 27 Performance Measures and Weights 30 Quota Distribution 32 Performance Range 34 Performance and Payment Periods 36 Summary Who Own Sales Compensation? 39 Sales Compensation Program Ownership 40 Program Accountabilities 41 Assignment of Program Accountabilities Large Sales Organizations 43 Using Committees 45 Sales Compensation The Process Manager 46 Summary Why Job Content Drives Sales Compensation Design 48 Job Content Drives Sales Compensation Design 48 Sales Job Components 50 Sales Job Type Inventory 53 Job Levels 61 Job Design Errors 62 Sales Compensation Practices by Job Types 64 Summary Formula Types 66 Types of Plans 66 Illustrating Formula Payouts with Sales Compensation Formula Graphs 66 Unit Rate Plans 68
4 CONTENTS IX Target Pay Incentive Plans: Commission versus Bonus 75 Target Incentive Plans: Commission Formula 78 About Link Designs r. 90 Bonus Formula: Providing Equal Earning Opportunities When Territories Are Dissimilar in Size 98 Target Bonus Plans 98 Bonus Calculation Basis 108 Special Designs 109 Base Salaries 116 Summary Formula Construction 122 Fundamentals of Sales Compensation Formulas 122 The Economics of Income Producers 125 Advanced Thinking about Income Producer Commission Rates 127 Constructing Sales Representative Formula 131 Formula Construction Worksheets 136 Summary Support Programs: Territories, Quotas, and Crediting 147 Territory Configuration 148 Quota Management 154 Sales Crediting 162 Summary Difficult to Compensate Sales Jobs 169 Channel Sales Representative 170 Long Sales Cycle, Mega-Order Sellers 171 Business Development Specification Sellers 172 Strategic Account Manager 173 Pursuit Teams 174
5 X CONTENTS New Account Sellers. 175 Account Manager 176 Overlay Specialist _., 177 New Hires 178 Branch Manager 179 House Account Manager 180 Sell and Deliver Service Providers 181 Merchandisers 181 Summary Compensating the Complex Sales Organization 183 Examples of Complex Sales Organizations 185 Challenges for Sales Compensation 191 Preferred Sales Compensation Outcomes 192 Sales Compensation Rules for Complex Sales Entities 193 Summary Global Sales Compensation 196 The Philosophy of Internationalism versus Globalism 196 Sales Compensation A Local Solution 198 Global Trigger Conditions. 202 Global Sales Compensation Solutions 204 Trends in Global Sales Compensation Practices 206 Summary Administration 208 Administration Components 209 How to Avoid Unnecessary Administrative Burdens 217 Summary Implementation and Communication 219 Implementation 219
6 CONTENTS XI Communication, 223 Summary Program Assessment 231 Strategic Alignment 232 Employee Motivation 234 Best-Practice Variance 235 Return on Investment 237 Program Management 237 Summary Sales Compensation Design 240 The Sales Compensation Design Process 241 Ten Steps to Sales Compensation Design 242 Summary 247 Closing Notes 248 Appendix A: Illustrative Sales Compensation Plan 250 Appendix B: Sales Compensation Surveys 263 Appendix C: Software Vendors Sales Compensation Administration Software 264 Index 265
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