Sales Chapter 9 Exam 2

base salary

fixed pay for work performed, excludes benefits/bonuses

quota

minimum desired sales level for a salesperson during a period

commission

payment tied to a sales performance, often beyond quota

bonus

lump sum payment for meeting/exceeding a target

recoverable draw

set amount paid to a rep at regular intervals, usually recovered from future commissions

incentive pay horizon

time between incentive payments

salary only

compensation plan that is predictable, works in collaborative cultures where reps have less control over buying decision

commission only

compensation plan that is low risk to the company, attracts highly driven performers

base salary + commission

compensation plan that has security and direct motivation to sell; ideal for many businesses

base salary + bonus

compensation plan that has predictable pay and motivation to reach preset targets

60-80% fixed pay, 20-40% variable pay

typical high value service mix

less control

more salary makes sense when reps have

more control

less salary makes sense when reps have

absolute commission

pays when specific targets or milestones are reached; 100 for every new customer obtained

relative commission

pay based on performance against quota; good for territories with different opportunity levels but similar effort

straight line commission

pay rises directly with the percentage of quota achieved; 50% of commission is earned when they sell 50% of their quota

gross margin commission

pay based on profit, not revenue; good for when firms want to prevent discounting and reward higher margin products

principal agent theory

conflict can occur because a company’s interest may differ from its employee’s

company

principal

employee

agent

quarterly

most firms review their sales comp plan annually, but they should do it

keep it simple, review quarterly, make sure performance measures do not create unintended behaviors, avoid capping compensation

compensation plan design

regional sales manager

sets quotas and goals, manage territories, coordinates training, recruits/hires/fires, represents team in company meetings

director of sales

determines objectives, forecasts, maintains sales volume, communicates executive direction

VP of sales

contributes to the overall strategy for growth and sales organization