The Complete Guide to Sales Force Incentive Compensation: How to Design and Implement Plans That Work by Andris A. Zoltners & Prabhakant Sinha & Sally E LORIMER

Author:Andris A. Zoltners & Prabhakant Sinha & Sally E LORIMER
Language: eng
Format: mobi
Publisher: AMACOM
Published: 2006-08-06T14:00:00+00:00

Figure 7-12. Advantages and management challenges of various performance–payout relationships.

The Sales Force Became Unhappy when a Magazine Publisher Flattened Payout Curves

Making the transition to a flatter payout curve for a sales force is always challenging. Recall the predicament of the magazine publisher Entrepreneur Group described in the introductory section of this chapter. The firm paid its advertising sales force entirely on commission with a steep payout curve. Rapid company growth and price increases led to excessive acceleration in sales force earnings. To reverse the trend, management overhauled the sales compensation plan, adding a base salary and slashing commission rates. Under the old plan, salespeople received a 6 percent commission on repeat business and 8 percent on new advertising. Under the new plan, salespeople received a $2,000 monthly salary, and they became qualified for a commission schedule if monthly sales exceeded $45,000. Commission rates varied from 1 percent at $45,000 up to a maximum of 2.85 percent at $105,000 in monthly sales. Many of the company's nine salespeople were upset by the new pay structure, saying that it undermined their earning potential. At current sales levels, the new plan was a considerable pay cut. Management countered that since there was no cap on earnings, salespeople who hustled could earn as much or more than under the old plan. If commission schedules are kept stable for a period of time, salespeople expect future stability and perceive a “loss” if a change is made. However, if commission rates are revised regularly while managing stable target earnings, salespeople get used to such changes.

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