Overview of Salesperson Compensation and Incentives

Chapter 11 introduced the concept of rewards. The way the reward structure is implemented in a sales organization is through the compensation plan. Three basic questions drive successful compensation plans:

1. Which compensation method is most appropriate for motivating specific kinds of selling activities in specific selling situations?
2. How much of a salesperson’s total compensation should be earned through incentives?
3. What is the best mix of financial and nonfinancial compensation and incentives for motivating the sales force?

In most firms, the total financial compensation paid to salespeople has several components, each of which may be designed to achieve different objectives. The core of sales compensation plans consists of a salary and incentive payments. A salary is a fixed sum of money paid at regular intervals. The amount of salary paid to a given salesperson is usually a function of that salesperson’s experience, competence, and time on the job, as well as the sales manager’s judgments about the quality of the individual’s performance. Salary adjustments are useful to reward salespeople for performing customer relationship-building activities that may not directly result in sales in the short term, such as prospecting for new customers or providing postsale service. They can also help adjust for differences in sales potential across territories.

Many firms that pay their salespeople a salary also offer additional incentive pay to encourage good performance. Incentives may take the form of commissions tied to sales volume or profitability, or bonuses for meeting or exceeding specific performance targets (e.g., meeting quotas for particular products or particular types of customers). Such incentives direct salespeople’s efforts toward specific strategic objectives during the year, as well as provide additional rewards for top performers. A commission is a payment based on short-term results, usually a salesperson’s dollar or unit sales volume. Since a direct link exists between sales volume and the amount of commission received, commission payments are useful for increasing reps’ selling efforts.

A bonus is a payment made at management’s discretion for achieving or surpassing some set level of performance. Commissions are typically paid for each sale; in contrast, a bonus is typically not paid until the salesperson surpasses some level of total sales or other aspect of performance. The size of the bonus might be determined by the degree to which the salesperson exceeds the minimum level of performance required to earn it. Thus, bonuses are usually additional incentives to motivate salespeople to reach high levels of performance, rather than part of the basic compensation plan. Bonuses are almost never the sole form of compensation. Rather, they are combined with other compensation elements.

Attaining a quota is often the minimum requirement for a salesperson to earn a bonus. Quotas can be based on goals for sales volume, profitability of sales, or various account-servicing activities. To be effective, quotas (like goals) should be specific, measurable, and realistically attainable. Therefore, bonuses can be a reward for attaining or surpassing a predetermined level of performance on any dimensions for which quotas are set.

In addition to these incentives, many firms conduct sales contests to encourage extra effort aimed at specific short-term objectives. For example, a contest might offer additional rewards for salespeople who obtain a specified volume of orders from new customers or who exceed their quotas for a new product during a three-month period. Contest winners might be given additional cash, merchandise, or travel awards.

Finally, a foundation of most compensation plans is a package of employee benefits designed to satisfy the salesperson’s basic needs for security. Benefits typically include medical and disability insurance, life insurance, and a retirement plan, among others. The types and amount of benefits in a compensation plan are usually a matter of company policy and apply to all employees. The benefit package a firm offers its salespeople should be comparable to competitors’ plans to avoid being at a disadvantage when recruiting new sales talent.

The key forms of financial compensation of salespeople are summarized in Exhibit 13.1.

Exhibit 13.1 Components and Objectives of Financial Compensation Plans

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 12th ed. (London: Routledge, 2016).

It is important to know that, beyond financial compensation, a variety of nonfinancial incentives exist. These might take the form of opportunities for promotion or various types of recognition for performance, such as special awards and mention in company newsletters. Nonfinancial incentives will be discussed in more detail later in the chapter.

When it comes to rewards in general, a critical axiom in management is to reward what is expected. Although this may sound intuitively obvious and one might assume it would occur logically as a result of clear goals connected to a well-designed and executed compensation plan, nonetheless it is not uncommon for a disconnect to occur. Sales managers who find that their salespeople’s behaviors do not seem to match their organization’s goals might ask if their reward systems compensate salespeople for behaviors other than those sought by the firm. This issue, which is exacerbated because of the global scope of contemporary selling, is discussed further in Global Connection.

Straight Salary, Straight Commission, and Combination Plans

Three primary methods of compensating salespeople are (1) straight salary, (2) straight commission, and (3) a combination of base salary plus incentive pay in the form of commissions, bonuses, or both. In recent years, the steady trend has been away from both straight salary and straight commission plans toward combination plans. Today, combination plans are by far the most common form of compensation.

In essence, managers seek to create a “pay for performance” plan that uses both salary and incentive programs to maximize salespeople’s performance. Unfortunately, creating such programs is very complex, and companies often choose a program based on convenience or cost effectiveness rather than actual benefits to the company.² There is much variety in preferences for rewards among salespeople. And each approach has clear positives and negatives. Exhibit 13.2 highlights the three main compensation approaches, along with advantages and disadvantages of each.

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 12th ed. (London: Routledge, 2016).

Whether base salary is combined with commission payments or bonuses, managers must answer several questions when designing effective combination compensation plans. (1) What is the appropriate size of the incentive relative to the base salary? (2) Should a ceiling be imposed on incentive earnings? (3) When should the salesperson be credited with a sale? (4) Should team incentives be used? If so, how should they be allocated among members of a sales team? (5) How often should the salesperson receive incentive payments? Each of these issues will now be considered in detail.

Proportion of Incentive Pay to Total Compensation. What proportion of total compensation should be incentive pay? The sales manager’s decision should be based in large measure on the degree of relationship selling involved in the job. When the firm’s primary selling approaches relate directly to short-term sales (such as increasing dollar or unit sales volume, or profitability), a large incentive component should be offered. When customer service and other nonsales objectives are deemed more important, the major emphasis should be on the base salary component of the plan. This gives management more control over rewarding the sales force’s relationship-selling activities.

When the salesperson’s selling skill is the key to sales success, the incentive portion should be relatively large. However, when the product has been presold through advertising and the salesperson is largely an order taker, or when the sales job involves a large proportion of missionary or customer service work, the incentive component should be relatively small.

If a particular combination plan is not very effective at motivating salespeople, the incentive portion is probably too small to generate much interest. Companies are always challenged to hire and retain the best salespeople. One approach is to open up the incentive component to negotiation on an individual basis. Salespeople who seek greater security can focus on more fixed compensation (salary); risk takers can opt for the potential to earn even higher total compensation by placing more of their compensation in incentive-based rewards.³ Such individualized approaches must allow a salesperson to change his or her compensation allocation periodically, perhaps annually.

Incentive Ceilings. Should there be a ceiling or cap on incentive earnings to ensure top salespeople do not earn substantially more money than other employees? This issue is dealt with in very different ways across companies and industries. Strong arguments can be made on both sides. Part of the difference in how different firms handle this issue seems to reflect variation in average compensation levels. Firms in relatively low-paying industries are more likely to impose caps than those in higher-paying fields.

One argument in favor of ceilings is that they ensure top salespeople will not earn so much that other employees in the firm (sometimes even managers) suffer resentment and low morale. Ceilings also protect against windfalls—such as increased sales due to the introduction of successful new products—where a salesperson’s earnings might become very large without corresponding effort. Finally, ceilings make a firm’s maximum potential sales compensation expense more predictable and controllable.

A strong counterargument can be made, however, that ceilings ultimately reduce motivation and dampen the sales force’s enthusiasm. Also, some salespeople may reach the earnings maximum early and be inclined to take it easy for the rest of the year.

The issue of incentive ceilings has become a growing problem in contemporary selling, especially in a team-selling environment. As team selling brings individuals from around the company to help with a customer, the question becomes how much the sales rep should make in a sale resulting from the efforts of many individuals. This problem gets worse as the size of each sale grows larger and is especially relevant with key accounts.

Another problem with incentive ceilings occurs when the customer is a global firm. How much should the sales rep who is servicing the customer’s headquarters in his or her territory be compensated for a sale in another part of the world? The solution that many companies have chosen is capping incentive compensation.⁴

Some desired effects of ceilings can be accomplished without arbitrary limits on the sales force’s motivation if management pretests any new or revised compensation plan before implementing it. Sales managers can do this by analyzing the sales performance records of selected reps to see how they would have come out under the proposed compensation system. Particular attention should be given to the compensation that the best and poorest performers would have earned to ensure that the plan is both fair and reasonable.

When Is a Sale a Sale? When incentives are based on sales volume or other sales-related aspects of performance, the precise meaning of a sale should be defined to avoid confusion and irritation. Most incentive plans credit a salesperson with a sale when the order is accepted by the company, less any returns and allowances. Occasionally, though, it makes good sense to credit the salesperson with a sale only after the goods have been shipped or payment has been received from the customer. This is particularly true when the time between receipt of an order and shipment of the goods is long and the company wants its salespeople to maintain close contact with customers to prevent cancellations and other problems. As a compromise, some plans credit salespeople with half a sale when the order is received and the other half when payment is made.

Team versus Individual Incentives. The increasing use of cross-functional teams to win new customers and service major accounts raises some important questions about the kinds of incentives to include in a combination compensation plan. Should incentives be tied to the overall performance of the entire team, should separate incentives be keyed to the individual performance of each team member, or both? If both group and individual incentives are used, which should be given greater weight? Sales managers must address these questions when designing team-based incentives.

When Should a Salesperson Receive Incentive Payments? One survey of over 500 compensation plans found that 21 percent paid salespeople incentive earnings on an annual basis, 3 percent paid semiannually, 24 percent paid quarterly, and 52 percent made monthly payments. In general, plans offering salary plus commission were more likely to involve monthly incentive payments, while salary plus bonus plans more often made incentive payments on a quarterly or annual schedule.

Shorter intervals between performance and the receipt of rewards increase the motivating power of the plan. However, short intervals add to the computation required, increase administrative expenses, and may make the absolute amount of money received appear so small salespeople are not very impressed with their rewards. Quarterly incentive payments often are an effective compromise.

Other Types of Compensation

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 12th ed. (London: Routledge, 2016).

Deciding on the Mix and Level of Compensation

Not all salespeople find the same kinds of rewards equally attractive. Needs and preferences vary depending on personalities, demographic characteristics, and lifestyles. No single reward—including money—is likely to motivate all of a firm’s salespeople. Similarly, a mix of rewards that motivates a sales force at one time may lose its appeal as the members’ personal circumstances and needs change and as new salespeople are hired. In view of this, a wise first step in designing a sales compensation and incentive package is to determine the reps’ current preferences for various rewards.⁷

The decision about how much total compensation (base pay plus any incentives) a salesperson may earn is crucial in designing an effective motivation program. The starting point for this decision is to determine the gross amount of compensation necessary to attract, retain, and motivate salespeople who can manage the firm’s customer relationships. This also depends on the specific type of sales job in question, the size of the firm and the sales force, and the resources available to the firm.⁸

Chapter 2 introduced several types of sales jobs, and it is important to note that average total compensation varies substantially across them. In general, more complex and demanding sales jobs, which require salespeople with special qualifications, offer higher compensation than more routine sales jobs. To compete for the best talent, a firm should determine how much total compensation other firms in its industry or related ones provide people in similar jobs. Then the firm can decide whether to compensate its salespeople an average or above average amount relative to these other firms. Few companies consciously pay below average (although some do so without realizing it) because below-average compensation generally cannot attract selling talent.

The decision about whether to offer average or premium total compensation depends in part on the size of the firm and its sales force. Large firms with good reputations in their industries and large sales forces generally offer only average total compensation. Firms like Intel and Cisco can attract sales talent because of their reputation in the marketplace and because they are big enough to offer advancement into management. Such firms can hire younger people (often just out of school) as sales trainees and put them through an extensive training program. This allows them to provide relatively low total compensation because they do not have to pay a market premium to attract older, more experienced salespeople.

In contrast, smaller firms often cannot afford extensive training programs. They may have to offer above-average compensation to attract experienced sales reps from other firms.

Evaluating Salesperson Performance

Objective Measures of Performance

Objective measures (also referred to as objective controls) fall into three major categories: (1) output measures, (2) input measures, and (3) ratios of output and/or input measures. Exhibit 13.4 lists some of the more common output and input measures.

The use of outputs, inputs, and ratios to measure salesperson performance is a recognition of the nature of the overall selling process. As you have learned, some sales processes, especially those that contribute to securing, building, and maintaining long-term relationships with profitable customers, can take months or years. Within the selling process, salespeople engage in activities with (or in pursuit of) the prospect or buyer. The manager can measure those activities and compare them with results for each stage. By examining this performance evidence, the manager can pinpoint areas for improvement by each salesperson or identify changes needed in the sales strategy to align it with how buyers want to buy.

Output measures show the results of the efforts expended by the salesperson. They include a variety of information about orders and various account measures. Many objective measures of performance evaluation focus on the efforts sales reps expend rather than the results of those efforts. Evaluating these efforts requires input measures (also known as behavioral measures or controls) of performance. Input measures include various aspects of calls, time and time utilization, expenses, and nonselling activities.

Input measures are important for two key reasons. First, efforts or desirable behaviors are much more directly controllable than results in the short term. If a rep’s sales fall short of quota, the problem may lie with the person, the quota, or a change in the environment. On the other hand, if the number of calls a salesperson makes falls short of the target, it is clear that a majority of the problem lies with the individual.¹² Second, in selling there is often a time lag between inputs and outputs. A particularly large sale may be the result of several years of effort. Thus, focusing on the efforts (behaviors) themselves lets the sales manager evaluate and coach the salesperson during the selling process into making changes that can improve the output (results).

In today’s complex, solution-oriented selling environment, the relationship between output and input (behavioral) measures (controls) is changing. There is growing evidence that in many cases behavioral controls actually have a greater relationship to sales force revenue performance, a shift that runs counter to conventional wisdom. This might relate to the increasing complexity of the sales process which is better facilitated (assuming that an organization understands what specific activities lead to success) by placing controls in place that provide clearer guidance to salespeople of what is expected in terms of specific actions (e.g. place X number of calls per week). This kind of guidance as opposed to an output control (such as sell X number of a specific product per week to this segment of the market) may have more of a clear motivational value in that each step required (behavior) seems to be within the salesperson’s control. This is especially the case if achieving the ultimate output goal seems out of reach due to factors beyond the salesperson’s control. In addition, it is important for sales managers to understand that output and input (behavioral) controls are positively related to one another—that is, organizations that use more of one also tend to use more of the other. Hence, it’s best to consider them as two separate approaches rather than two ends of a continuum of measures.¹³

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 12th ed. (London: Routledge, 2016).

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 12th ed. (London: Routledge, 2016).

Subjective Measures of Performance

A useful distinction exists between the quantitative nature of objective measures of performance just discussed and the qualitative nature of the subjective performance measures discussed in this section. Quantitative measures focus on the outputs and inputs related to what salespeople do; qualitative measures reflect process aspects of what they do and how well they do it. This difference in what is being measured leads to marked differences in how objective and subjective measurements are taken and how they are used.

In many ways, it is more difficult to assess salespeople qualitatively versus quantitavely. Quantitative measures can require a detailed analysis of a salesperson’s call report, an extensive time utilization analysis, or an analysis of the type and number of nonselling activities employed. However, once the measurement procedure is set up, it typically can be conducted fairly and consistently.

When assessing qualitative performance factors, even a well-designed measurement process that is firmly in place leaves much room for bias in the evaluation. Bias in a performance evaluation represents a difference from objective reality, usually based on errors by the evaluator (the sales manager). Even well-designed systems rely on the personal judgment of the individuals charged with evaluation. Typically, the manager rates the salesperson on a performance appraisal form on a number of attributes, such as the following:

1. Sales results. Volume of sales, sales to new accounts, and selling of the full product line.
2. Job knowledge. Knowledge of company policies, prices, and products.
3. Management of territory. Planning activities and calls, controlling expenses, and handling reports and records.
4. Customer and company relations. The salesperson’s standing with customers, associates, and company.
5. Personal characteristics. Initiative, personal appearance, personality, resourcefulness, and so on.

Note the mix of objective and subjective performance measures. Most formal performance evaluations of salespeople involve a combination of these two types of criteria.

BARS Systems

A BARS (behaviorally anchored rating scale) system concentrates on the behaviors and other performance criteria the individual can control. The system focuses on the fact that a number of factors affect any employee’s performance. However, some of these factors are more critical to job success than others, and in evaluation it is important to focus on the key success factors for contemporary selling as identified and discussed in chapter 2. Implementing a BARS system for evaluating salespeople requires identifying the specific behaviors relevant to their performance. The evaluation must rate these behaviors using the appropriate descriptions.¹⁹

To develop a BARS system, management identifies the key behaviors with respect to performance using critical incidents. Critical incidents are occurrences that are vital (critical) to performance. Managers and sales reps could be asked to identify some outstanding examples of good or bad performance and to detail why they were good or bad.²⁰ The performances are then reduced to a smaller number of performance dimensions.

Next, the group of critical incidents is presented to a select group of sales personnel (perhaps top salespeople and sales managers), who assign each critical incident to an appropriate performance dimension. An incident is typically kept in if 60 percent or more of the group assigns it to the same dimension as did the instrument development group. The sales personnel group is also asked to rate the behavior described in the critical incident on a 7- or 10-point scale with respect to how effectively or ineffectively it represents performance on the dimension.

Exhibit 13.6 A Bars Scale with Behavioral Anchors for the Attribute “Promptness in Meeting Deadlines”

Source: Mark W. Johnston and Greg W. Marshall, Sales Force Management, 12th ed. (London: Routledge, 2016).

Incidents that generate good agreement in ratings, typically indicated by a low standard deviation, are considered for the final scale. The particular incidents chosen are determined by their location along the scale, as measured by the mean scores. Typically, the final scale has six to eight anchors. Exhibit 13.6 shows a BARS scale that resulted from such a process for the attribute “promptness in meeting deadlines.”

A key advantage of a BARS system is that it requires sales managers to consider in detail a wide range of components of a salesperson’s job performance. It must also include clearly defined anchors for those performance criteria in specific behavioral terms, leading to thoughtful consideration by managers of just what comprises performance. Of course, by nature a BARS emphasizes behavior and performance rather than effectiveness. When used in tandem with appropriate objective measures (sales and profit analyses and output, input, and ratio measures), BARS can handle subjective evaluation criteria, providing as complete a picture as possible of a salesperson’s overall performance and effectiveness.

BARS systems are not without their limitations, though. For one thing, the job-specific nature of their scales suggests they are most effective in evaluating salespeople performing very similar functions. They might be good for comparing one national account rep to another national account rep or two territory reps against each other, but they could suffer major shortcomings if used to compare a national account rep against a territory rep because of differences in responsibilities in these positions. BARS systems can also be relatively costly to develop since they require a good deal of up-front time from many people.²¹

360-Degree Performance Feedback

As you learned in chapter 5, one important attraction of CRM systems is their inherent ability to provide feedback from a wide range of constituents and stakeholders. Although much of this information is used for product development and formulation of the overall marketing message, CRM systems typically also facilitate the gathering, analysis, and dissemination of a great deal of information directly relevant to the performance of the sales force.

To take full advantage of the information generated by enterprise software such as CRM, the firm as a whole must embrace the philosophy that the customer is a customer of the company, not just of the individual salesperson. You have seen that the complex and often lengthy process of developing and managing customer relationships almost always involves more than just a salesperson and a purchasing agent. An effective CRM system should be gathering data at all the touchpoints where members of a selling organization interact with members of a buying organization and where members of a selling organization interact internally to build a business relationship with a customer.

Such a comprehensive information management process allows us to rethink the nature of input data for use in salesperson performance evaluation. Rather than relying on purely objective measures or on subjective measures generated by one person (the sales manager), evaluators can receive information from multiple sources. This concept, called 360-degree performance feedback, opens the door to a new era in using the performance appraisal process as an effective tool for salesperson development and improvement.

Among the sources of feedback useful to salespeople are external customers, internal customers (people within your firm who may not have external customer contact but who nonetheless add value that will ultimately benefit external customers), other members of the selling team, anyone who reports directly to the sales manager (such as sales assistants), and of course the sales manager.²² Integrating feedback from these and other relevant sources of performance information into the formal evaluation process (and thus onto the evaluation form) can provide the impetus for a more productive dialogue between the sales manager and salesperson at performance review time. Ethical Dilemma #2 provides a fascinating example of how customer feedback could be impacted by a rejected client request for unethical behavior by their salesperson.

Related to 360-degree feedback is self-evaluation. Sales organizations should encourage salespeople to prepare an honest assessment of their own performance against the established objective and subjective performance criteria. This should be prepared before the formal performance review session with the sales manager.²³ The best sales organizations use this process to begin setting sales unit goals for the next period and especially to establish a professional development program to help move salespeople toward the fulfillment of their personal goals on the job.

In Chapter 11 you learned that intrinsic rewards are those that salespeople primarily attain for themselves. They include such things as feelings of accomplishment, personal growth, and self-worth and can be very powerful motivators. Allowing salespeople to have direct input by establishing personal growth goals on the job, and then institutionalizing the achievement of those goals via the formal performance evaluation process, goes a long way toward providing a workplace atmosphere where they can realize their intrinsic rewards.

It is important to involve salespeople directly in all phases of the performance appraisal process. When appraisals provide clear criteria whose development included input by salespeople, and the appraisals are perceived as fair and are used in determining rewards, salesperson job satisfaction increases. Thus, the critical determinants of appraisal effectiveness are not purely criteria-driven. Instead, they are largely determined by appraisal process factors that managers can influence, such as buy-in by those being appraised and fairness of the appraisal process.²⁴

An old adage in human resource management holds that if an employee is surprised by anything he or she is told during a formal performance review, the manager is not doing a very good job. Performance evaluation should not be a cathartic event that happens once or twice a year. Such an approach can cause great trepidation by both employees and managers and often leads managers to procrastinate in conducting the review and minimize the time spent with the employee during the review.

Great sales organizations use the performance evaluation process to facilitate ongoing dialogue between salespeople and their managers. A key goal should be to facilitate professional and personal development by providing salespeople the feedback and tools they need to achieve their goals in the job. To make this happen, sales managers must carry on the dialogue beyond just the periodic formal appraisal event into day-to-day communication with salespeople. Importantly, this developmental perspective on performance evaluation requires sales managers to not just give feedback but also listen and respond to feedback and questions from the salespeople.

Ultimately, sales organizations need to work toward developing a performance management system, which requires a commitment to integrating all the elements of feedback on the process of serving customers. The result is performance information that is timely, accurate, and relevant to the firm’s overall customer management initiative.²⁵ The pieces of the performance puzzle are integrated in such a way that the salesperson does not have to wait on the manager for a formal validation of performance. Instead, under a performance management system approach, salespeople take the lead in goal setting, performance measurement, and adjustment of their own performance.²⁶ The concept of performance management is analogous to Total Quality Management (TQM) approaches that advocate the empowerment of employees to take ownership of their own jobs and conduct their own analyses of performance against goals, creating a culture of self-management. To successfully implement a performance management system, sales managers must shift their leadership style to that of a partner in a mutually shared process.

Summary

To manage the contemporary selling process effectively, sales managers must address the firm’s compensation system. Which rewards do salespeople value? How much of each is optimum? How should the rewards be integrated into a total compensation system? This chapter provides insights to these issues.

In determining the most effective form of financial compensation, the firm must decide whether to use (1) straight salary, (2) straight commission, or (3) a combination of base salary and incentive pay such as commissions, bonuses, or both. Most companies today use a combination approach. The base salary gives salespeople a stable income while allowing the company to reward them for performing tasks not directly related to short-term sales. The incentive portion of a combination plan provides direct rewards to motivate salespeople to expend effort to improve their sales volume or other aspect of their quota. To be effective, the incentive has to be large enough to generate interest among salespeople.

Sales contests are often part of incentive compensation. In addition, nonfinancial incentives such as opportunity for advancement and recognition programs can play an important role in a firm’s compensation system. Often, salespeople qualify for the use of expense accounts, which of course also add to total compensation. Overall, the sales manager must determine an appropriate mix and level of compensation for salespeople that maximizes the compensation plan’s motivational value, is fair, and is consistent with the firm’s resources.

In terms of salesperson evaluation, the concepts of performance and effectiveness are different. Performance is a salesperson’s behavior evaluated in terms of its contribution to the goals of the organization. Effectiveness is an organizational outcome for which a salesperson is at least partly responsible, usually examined across a variety of indexes.

Salespeople may be evaluated based on objective and subjective criteria. Objective measures reflect statistics a sales manager can gather from a firm’s internal data and other means. They may be categorized as output measures (the results of the efforts expended by salespeople) and input measures (the efforts they expend achieving the results). Objective measures also may take the form of ratios that combine various outputs and/or inputs. On the other hand, subjective measures typically rely on personal evaluations, usually by the sales manager, of how the salesperson is doing. Managers should pay attention to both objective and subjective measures in evaluating salespeople.

A variety of potential pitfalls exist in performance measurement, especially regarding subjective measures. These problems often take the form of various errors or biases in the evaluation, which result in an inaccurate performance appraisal that the salesperson rightly perceives as unfair. Sales organizations and their managers must take great care to conduct the performance evaluation process as fairly and accurately as possible. BARS systems aid in this process.

In addition, 360-degree feedback in the performance review, including a strong component of self-evaluation by the salesperson, can greatly improve the usefulness of the performance evaluation process.

Discussion Questions

1. We know that the use of selling teams is common practice today. These teams sometimes include both salespeople and other employees. As with individual salespeople, the success of these teams depends in part on the reward systems used to motivate and recognize performance. How would you develop a compensation plan that motivates members of a selling team? How can you ensure the plan is fair for everybody involved?
2. When OfficeSolutions, a software producer, went into business, it needed to establish market share quickly. To accomplish this, it decided to pay the sales force a straight commission. After two years, the company had a large base of business, but customers began to complain that salespeople were not spending enough time with them on postsale service and problem solving. The salespeople said they did not make any money on problem solving and would rather spend their time finding new customers. What’s more, salespeople spent little or no time selling the new products on which OfficeSolutions was staking its future. They said they could sell the old products more easily and earn more money for both themselves and the company. How might the company rework its compensation plan to begin to resolve this issue?
3. A sales manager says, “You can never hold enough sales contests for your salespeople. The more, the merrier. They are guaranteed to increase your business.” Evaluate this statement.
4. Assume you are taking a selling job right out of college. What would be your own ideal compensation mix? Why?
5. What are the pros and cons of placing ceilings on salesperson incentives? If you were a sales manager, would you ever advocate incentive ceilings? If so, in what situation(s) and why?
6. Given the following information from evaluations of the performance of different sales representatives, what can you conclude about why the reps are not achieving quota? (Assume each is not making quota.)
   1. Rep 1: Achieved goals for sales calls, phone calls, and new accounts; customer relations are good; no noticeable deficiencies in any areas.
   2. Rep 2: Completed substantially fewer sales calls than goal. Many phone calls, but primarily with one firm. Time management analysis shows the sales rep spends a disproportionately large amount of time with one firm. New accounts are low; all other areas good to outstanding.
   3. Rep 3: Number of sales calls low, below goal. Telephone calls, email correspondence, proposals all very low and below goal. Evaluation shows poor time utilization. Very high amount of service-related activities in rep’s log; customer relations extremely positive; recently has received a great deal of feedback from customers on product function.
7. Is sales just a numbers game, as one sales manager claims? She believes that all you have to do is make the right number of calls of the right type, and the odds will work in your favor. Make 10 calls, get one sale. So to get two sales, make 20 calls. Is this the right approach? Why or why not?

8. Jackie Hitchcock, recently promoted to district sales manager, faced a new problem she wasn’t sure how to resolve. The district’s top sales rep is also the district’s number one problem. Brad Coombs traditionally leads the company in sales but also in problems. He has broken every rule, bent every policy, deviated from guidelines, and been less than truthful. Jackie knew Brad had never done anything illegal, but she was worried that something serious could happen. Brad also does not prepare call reports on time, fails to show up at trade shows, and doesn’t attend sales training programs.

   How should Jackie handle this problem? How does a sales manager manage a maverick sales rep? Specifically, how can the performance evaluation process help Jackie deal with Brad?