Question

Designing and Administering Compensation Plans; Supervision of Salesmen; Standards and
Performance; Motivating Sales Personnel; Sales Meetings and Sales contests.

Answer 1

Designing and Administering Compensation Plans

                   Compensation management refers to the process of establishing the structure of wage levels for various positions, designing incentive systems, and setting individual wages and incentives within these established structures. Compensation management is a major aspect of personnel management, which impacts the overall performance of the firm.

                 Compensation has an impact on job satisfaction, employee turnover, productivity and total organizational effectiveness. Total compensation consists of base pay, incentives and benefits. Non-monetary factors, such as physical working conditions, training opportunities, and the social work environment, also have major impacts on recruiting and keeping good employees.

     Objectives of Compensation

The three major objectives of compensation are to:

· Attract qualified employees,

· Retain good employees, and

· Motivate employees toward organizational goals.

Compensation systems also must meet secondary objectives of:

Legal: Be consistent with federal, state, and local laws.

  Equitable: Viewed by the individual employees as being equitable, relative to other employees within the organization and similar positions outside the firm.

Secure: Meet the employee’s need for a secure and predictable income.

  Cost effective: The company’s total investment in compensation must be consistent with the employee’s contribution to overall profits.

Developing a Wage and Salary Program The development of a compensation program involves four basic factors:

1. Establishing the wage level,

2. Setting the wage structure,

3. Designing incentive systems and

4. Setting individual wages within the wage and incentive structure.

(1) Establishing Wage Levels

The first step is to establish the average total compensation for each position description. In setting the compensation level, the manager should consider the prevailing wage rate for local firms with similar jobs, the size of the organization, and the firm’s financial position. The manager also may consider conducting an informal wage survey by contacting managers of other similar size firm’s and/or review the results of industry wage studies. If industry wage data is used, it is important to consider the differences between various labor, geographical and industry markets, the comparability of the positions, and the timeliness of the data. Surveys conducted by trade organizations tend to be somewhat inflated, relative to those conducted by organizations with no vested interest in the results.

(2) Wage and Salary Structure

The organization’s wage structure is the relative compensation levels for various positions within the firm. The structure should define both the base salary and the salary range for each position and the relative salaries of each position in the firm. The base compensation represents the amount which would be paid for acceptable performance. This level is for the position, not for the person in the job. The salary range defines the amounts above and below the base which could be paid with various levels of performance. A typical salary range is 10 to 20 percent above and below the base compensation level. Formally analyzing the wage structure will help prevent perceived inequities within the organization and will provide a paper trail for documenting compliance to federal anti-discrimination regulations.

                    In setting the compensation structure a list of the major positions should be developed. For each position, the factors affecting the wage rate such as responsibility, physical demands, skills and education required, supervisory responsibilities, and working conditions should be listed. Some managers develop a formal weighing system which assigns points to each job factor. Other managers summarize the factors and then make a subjective decision as to the compensation level for each position. It is important to periodically review the compensation structure. Inflation, competitive factors in the job market, and changes in job structures and qualifications may make it necessary to update the compensation structure.

(3) Incentive Systems

In designing an incentive system, the manager must decide what portion of the pay, if any, should be based on individual or group performance. In order to be effective, any incentive system requires that a good system of performance evaluation be in place. Performance based incentives can increase productivity. However, basing too large a portion of compensation on performance, particularly for lower wage level jobs, can give some workers the feeling of too much uncertainty. Typically, the percentage of the overall compensation which is provided as an incentive increases with the relative salary level of the position. Entry level positions may have five to 10 percent of incentive-based compensation while the percentage of the manager’s salary, which is based on performance, may be 20 to 40 percent. A summary of the advantages and disadvantages of incentive based compensation are:

Advantages of Incentives

· Provide clear motivation to increase productivity and performance,

· Decrease complaints of wage inequity within the organization, and

· Increase feeling of ownership in organization’s objectives.

Disadvantages of Incentives

· Profit-based incentives are influenced by general economic conditions which are outside of the control of the employee,

· Incentive systems require more management time in creating and monitoring

· Some employees may experience excessive anxiety when incentives represent too large a portion of their total compensation, and

· Incentives may result in overemphasis on particular job factors or short-term goals at the expense of the organization’s long-run objectives.

Individual Compensation Levels

The preceding steps have established the wage structure and incentive system and determined compensation ranges for each position. The final step is to set individual compensation. The performance evaluation should be used to help set the compensation within the salary range. Under the well-accepted principle of management by objective, performance standards should be negotiated and agreed upon by the employee and manager at the beginning of the appraisal period. The actual performance, relative to the standards, can be used to establish the compensation level within the range established. Other factors may include experience or seniority, and the completion of job-related training programs. Summary Designing and administering an effective compensation system is an essential part of personnel management.

The key steps are:

• Selecting a compensation structure,
• Establishing compensation ranges,
• Deciding what portion of the compensation, if any, will be incentive-based, and
• Determining individual compensation levels.

Supervision of Salesmen

The primary aim of supervision involves – improve a Sales Represen­tatives ability to make profitable sales.

No Company should eliminate supervision, but proper definition of the job and appropriate motivation can help to reduce the amount of supervision required. Supervisors must exercise the managerial functions of planning, directing, and checking, so that they distribute effectively the workload, set proper targets, and evaluate performance in comparison with these targets. They should guide the Representatives in their work and must choose carefully the most-effective communication method of giving this guidance.

The Need for Supervision

   Even if all Sales Representatives had appropriate motivation and could see their own selling faults, the need would still exist for someone to decide what each Representative should do in relation to all other person­nel – in order that the Company achieves its Sales objectives.

Supervision primarily entails giving direction to each person’s work and in relation to the work of others. It should ensure that people do what they should do and do not do useless things or activities which harm over­all Company objectives. Good supervision will also: (a) provide guidance to improve the abilities and activities of Sales Representatives in their work and (b) encourage and help them so that they can more easily help themselves.

Sales Representatives have difficulties peculiar to their occupation since most of their work involves dealing with other people. Success or failure in a sale depends on decisions made by other people. While Repre­sentatives can influence the decisions they must face rebuffs, disappoint­ments, rudeness, and “brush-offs”. Supervisors need to offer encouragement and support to maintain high morale in their Sales force.

Supervision of outdoor Sales Representatives has special difficulties. They work over a wide area and often they see no one from their Company for several days at a time. They spend a fair proportion of their time travel­ling, often alone. Sometimes they have to put up with unsatisfactory accom­modation and meals. They frequently have to travel away from their fami­lies for long periods. In these circumstances – especially after an unsuc­cessful day – Sales Representatives can rate their work as unrewarding. These difficulties mean that Managers need to offer a high quality of supervision. The fact that travelling time restricts contact between Supervisor and Sales Representatives makes the task even more difficult.

Major Factors in Supervision

Supervision in the sales field (as in all other managing activities) has the following three activities – planning, directing and checking. In particular, Supervisors should:

(a) Assign a definite amount of work for Representatives to do.

(b) Set required standards of performance.

(c) Evaluate each Representatives performance against the standards.

Supervisors should also divide the available market area into ap­propriate territories, assign these territories to particular Representa­tives, and ensure the Representatives set targets for sales in each of their territories.

Four different groupings exist for standards:

(a) Volume – How much does the Sales Representative sell?

(b) Expenses – How much money does it cost to make the sales?

(c) Profit – What gross profit does each Sales Representative make?

(d) Activities – What does the Sales Representative actually do?

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