Deck 17: Motivation, Compensation, Leadership, and Evaluation of Salespeople

Question 1

Visit a sales manager of a local real estate firm and a sales manager of a national corporation and compare how each company motivates their salespeople. Ask each sales manager about the company's leadership style. Finally, determine the performance criteria and procedures each manager uses to evaluate salespeople.

Answer 1

Not Answer

Question 2

"What we have here is a failure to communicate," goes a line from the movie Cool Hand Luke.In reality, managers label a lot of issues as communications problems that are not. For example:
A Failure to Communicate
Disagreement: "My subordinates do not agree with the new pricing strategy," a vice president lamented. "I guess we have a communication problem." In this case communication was not the problem. Subordinates understood the strategy; they simply thought it was a bad idea. To call disagreements communication problems only confuses others.
Distrust: "My manager tells me one thing and does another," an employee complained. "We just don't communicate." No amount of communication could improve this relationship. It is a matter of trust, not communication. To improve relationships, the manager must work on improving trust among subordinates. A beginning step is to be open and direct with people.
Information overload: From a manager: "I don't know why our people complain about communication. We provide them with stacks of reports." This organization bombarded employees with tons of data, but employees could have cared less about most of the details. The few things of interest were often buried deep. Again, more communication does not reduce frustration. But a newly designed, more effective management information system would probably help.

Answer 2

Not Answer

Question 3

Assume that you have 10 points to allocate to each of the following pairs of statements. Assign the points so they indicate the strength of your belief; write your answers on a separate sheet of paper.
Total the points allocated to the following: 1B. If you have a score of 40 or more, you have an effective communication philosophy. 3

Answer 3

Not Answer

Question 4

You have been a sales manager for a small regional manufacturing firm for just over a year. By accident you overheard two salespeople discussing how much they had padded their expense reports for that month. These two salespeople have been with the company for several years, are very successful in their jobs, and are well liked by the rest of the sales staff. You know that the firm has strict rules regarding sales expense reporting and that this policy would require that the two salespeople be severely reprimanded or fired.
What would be the most ethical action to take
Without mentioning particulars, let your boss know that you have heard people were padding their expense reports and that he/she might want to review them more carefully.

Question 5

Assume that you have 10 points to allocate to each of the following pairs of statements. Assign the points so they indicate the strength of your belief; write your answers on a separate sheet of paper.
Total the points allocated to the following: 2B. If you have a score of 40 or more, you have an effective communication philosophy. 3

Question 6

You have been a sales manager for a small regional manufacturing firm for just over a year. By accident you overheard two salespeople discussing how much they had padded their expense reports for that month. These two salespeople have been with the company for several years, are very successful in their jobs, and are well liked by the rest of the sales staff. You know that the firm has strict rules regarding sales expense reporting and that this policy would require that the two salespeople be severely reprimanded or fired.
What would be the most ethical action to take
Tell your boss about the conversation you heard and who was involved. It is not right of them to take advantage of the company-they should expect whatever punishment comes to them.

Question 7

Assume that you have 10 points to allocate to each of the following pairs of statements. Assign the points so they indicate the strength of your belief; write your answers on a separate sheet of paper.
Total the points allocated to the following: 3A. If you have a score of 40 or more, you have an effective communication philosophy. 3

Question 8

Assume that you have 10 points to allocate to each of the following pairs of statements. Assign the points so they indicate the strength of your belief; write your answers on a separate sheet of paper.
Total the points allocated to the following: 4A. If you have a score of 40 or more, you have an effective communication philosophy. 3

Question 9

Assume that you have 10 points to allocate to each of the following pairs of statements. Assign the points so they indicate the strength of your belief; write your answers on a separate sheet of paper.
Total the points allocated to the following: 5B. If you have a score of 40 or more, you have an effective communication philosophy. 3

Question 10

You have been a sales manager for a small regional manufacturing firm for just over a year. By accident you overheard two salespeople discussing how much they had padded their expense reports for that month. These two salespeople have been with the company for several years, are very successful in their jobs, and are well liked by the rest of the sales staff. You know that the firm has strict rules regarding sales expense reporting and that this policy would require that the two salespeople be severely reprimanded or fired.
What would be the most ethical action to take
Do nothing. It is not your responsibility to turn them in. Besides, you never would have known if you didn't "accidentally" hear.

Question 11

Assume that you have 10 points to allocate to each of the following pairs of statements. Assign the points so they indicate the strength of your belief; write your answers on a separate sheet of paper.
Total the points allocated to the following: 6B. If you have a score of 40 or more, you have an effective communication philosophy. 3

Question 12

What is meant by motivation What can a sales manager do to motivate salespeople

Question 13

The marketing vice president for Baxter Surgical Supplies Incorporated (BSSI), a manufacturer and distributor of medical supplies and equipment, was reviewing the company's method of compensation at the end of 1998. BSSI was second in the industry in total sales to American Hospital Supplies. The company's main offices were located in Richmond, Virginia, with plants in Florida, Texas, California, and Michigan. The sales force consisted of more than 600 people supervised by 60 sales managers.
BSSI had a variety of products that required different levels of selling skills. Its equipment line consisted of such items as x-ray machines, cast saws, therapeutic equipment, and prosthesis parts. The medical supplies line included all types of medicines, cast material, bandages, splints, and syringes. To sell both lines, the salesperson had to receive good training. These products were sold to hospitals and to physicians with medical practices.
The Role of the Salespeople. The salesperson was expected to search for new accounts, service existing accounts, and maintain goodwill between the company and its clients. A typical day might find the salesperson calling on a hospital in the morning. There, she would check on emergency room needs, the material supplies office, and administrative offices. Afterward, she might set up a display at the hospital, next to the doctor's parking lot. Later, the salesperson might begin making calls on offices located in the immediate area. Usually, a salesperson could make several individual calls because the private offices were generally located near the hospitals. A call might be made to introduce new products to the doctor or it might simply be to check with the nurses about replenishing supplies. If the former was the case, a special time might be scheduled. Major products often required selling on the weekends.
A few products could cost as much as $60,000, whereas other products might not cost more than $1. Generally, the individual accounts placed orders for supplies that would last about two weeks. However, hospital accounts, because of the larger storage rooms, normally ordered monthly. In addition, the hospitals, which had staffs in charge of their inventory, would usually send in their order forms without the help of a salesperson. BSSI policy was to check with these people regularly whether or not they needed any additional help.
Sales Force Compensation. Bill Woodson, a marketing vice president, had the idea of examining the firm's sales force compensation. He believed two areas involving sales personnel needed improvement-sales force turnover and number of sales calls.
Sales managers did some occasional selling, but their primary responsibility was supervision and training of the sales force. Each manager had from 9 to 11 salespeople reporting to him. They were paid a straight salary that depended on their length of time with BSSI. In addition, a bonus was paid to the sales manager at the end of the year depending on how well the district had done. Salaries for all sales managers averaged $90,400 with a range of $79,000 to $117,000.
The sales personnel were paid a straight salary their first year. BSSI management felt that the first-year salesperson knew so little about selling and contributed such a small portion to profits relative to experienced sales personnel that a straight salary would benefit them more. These first-year salespeople were paid $43,000 in 1998. They are typically placed in smaller territories with relatively low sales. As they gained experience, they were paid a larger base salary that depended on the length of time they had been with the company. They also received a bonus at the end of each year according to the district's performance. The bonus equals up to 10 percent of their sales. Sales managers and sales personnel were reimbursed for all expenses incurred while selling. BSSI was proud of the fact that most of its sales force had at least bachelor's degrees, with several members having MBAs.
As Woodson looked over the sales personnel compensation policy, he wondered why his turnover rate was so high. Turnover for people working less than 18 months was 35 percent. After this turnover dropped to 8 percent. It appeared to him that many of the salespeople would get training from BSSI and then run off to competitors. He also felt that because the salespeople were unsupervised so much, they often took off early in the afternoon and possibly did not even work on some days. Woodson understood that there would be several people who would try to take advantage of this freedom. However, he believed that there was just not enough incentive to hunt for those extra sales or spend after-hours time with clients. It appeared to him that the compensation method was benefiting only persons who had been with the firm for some time. He felt there was not enough incentive to keep the really good performers. The aggressive salespersons could earn more in other companies without having to wait. For example, both American Hospital and Stevens Hospital Supply paid 100 percent commission-even for new salespeople.
Woodson considered the three basic compensation plans-straight salary, straight commission, and a combination of salary and incentives. Then he called Bill Jones, BSSI's national sales manager, to discuss the alternatives.
What are the advantages and disadvantages of a straight salary for Baxter Surgical Supplies

Question 14

What are the major methods used to compensate salespeople Discuss each method's advantages and disadvantages.

Question 15

The marketing vice president for Baxter Surgical Supplies Incorporated (BSSI), a manufacturer and distributor of medical supplies and equipment, was reviewing the company's method of compensation at the end of 1998. BSSI was second in the industry in total sales to American Hospital Supplies. The company's main offices were located in Richmond, Virginia, with plants in Florida, Texas, California, and Michigan. The sales force consisted of more than 600 people supervised by 60 sales managers.
BSSI had a variety of products that required different levels of selling skills. Its equipment line consisted of such items as x-ray machines, cast saws, therapeutic equipment, and prosthesis parts. The medical supplies line included all types of medicines, cast material, bandages, splints, and syringes. To sell both lines, the salesperson had to receive good training. These products were sold to hospitals and to physicians with medical practices.
The Role of the Salespeople. The salesperson was expected to search for new accounts, service existing accounts, and maintain goodwill between the company and its clients. A typical day might find the salesperson calling on a hospital in the morning. There, she would check on emergency room needs, the material supplies office, and administrative offices. Afterward, she might set up a display at the hospital, next to the doctor's parking lot. Later, the salesperson might begin making calls on offices located in the immediate area. Usually, a salesperson could make several individual calls because the private offices were generally located near the hospitals. A call might be made to introduce new products to the doctor or it might simply be to check
with the nurses about replenishing supplies. If the former was the case, a special time might be scheduled. Major products often required selling on the weekends.
A few products could cost as much as $60,000, whereas other products might not cost more than $1. Generally, the individual accounts placed orders for supplies that would last about two weeks. However, hospital accounts, because of the larger storage rooms, normally ordered monthly. In addition, the hospitals, which had staffs in charge of their inventory, would usually send in their order forms without the help of a salesperson. BSSI policy was to check with these people regularly whether or not they needed any additional help.
Sales Force Compensation. Bill Woodson, a marketing vice president, had the idea of examining the firm's sales force compensation. He believed two areas involving sales personnel needed improvement-sales force turnover and number of sales calls.
Sales managers did some occasional selling, but their primary responsibility was supervision and training of the sales force. Each manager had from 9 to 11 salespeople reporting to him. They were paid a straight salary that depended on their length of time with BSSI. In addition, a bonus was paid to the sales manager at the end of the year depending on how well the district had done. Salaries for all sales managers averaged $90,400 with a range of $79,000 to $117,000.
he sales personnel were paid a straight salary their first year. BSSI management felt that the first-year salesperson knew so little about selling and contributed such a small portion to profits relative to experienced sales personnel that a straight salary would benefit them more. These first-year salespeople were paid $43,000 in 1998. They are typically placed in smaller territories with relatively low sales. As they gained experience, they were paid a larger base salary that depended on the length of time they had been with the company. They also received a bonus at the end of each year according to the district's performance. The bonus equals up to 10 percent of their sales. Sales managers and sales personnel were reimbursed for all expenses incurred while selling. BSSI was proud of the fact that most of its sales force had at least bachelor's degrees, with several members having MBAs.
As Woodson looked over the sales personnel compensation policy, he wondered why his turnover rate was so high. Turnover for people working less than 18 months was 35 percent. After this turnover dropped to 8 percent. It appeared to him that many of the salespeople would get training from BSSI and then run off to competitors. He also felt that because the salespeople were unsupervised so much, they often took off early in the afternoon and possibly did not even work on some days. Woodson understood that there would be several people who would try to take advantage of this freedom. However, he believed that there was just not enough incentive to hunt for those extra sales or spend after-hours time with clients. It appeared to him that the compensation method was benefiting only persons who had been with the firm for some time. He felt there was not enough incentive to keep the really good performers. The aggressive salespersons could earn more in other companies without having to wait. For example, both American Hospital and Stevens Hospital Supply paid 100 percent commission-even for new salespeople.
Woodson considered the three basic compensation plans-straight salary, straight commission, and a combination of salary and incentives. Then he called Bill Jones, BSSI's national sales manager, to discuss the alternatives.
*This case was developed by Rich Knight, under the supervision of Professor Charles M. Futrell. The company name and geographical location have been changed. Mr. Knight is now president of BSSI.
Is the compensation plan causing a problem How

Question 16

Discuss why salespeople's performance should be evaluated, who should evaluate their performance, when they should be evaluated, and proper procedures for evaluating performance.

Question 17

The marketing vice president for Baxter Surgical Supplies Incorporated (BSSI), a manufacturer and distributor of medical supplies and equipment, was reviewing the company's method of compensation at the end of 1998. BSSI was second in the industry in total sales to American Hospital Supplies. The company's main offices were located in Richmond, Virginia, with plants in Florida, Texas, California, and Michigan. The sales force consisted of more than 600 people supervised by 60 sales managers.
BSSI had a variety of products that required different levels of selling skills. Its equipment line consisted of such items as x-ray machines, cast saws, therapeutic equipment, and prosthesis parts. The medical supplies line included all types of medicines, cast material, bandages, splints, and syringes. To sell both lines, the salesperson had to receive good training. These products were sold to hospitals and to physicians with medical practices.
The Role of the Salespeople. The salesperson was expected to search for new accounts, service existing accounts, and maintain goodwill between the company and its clients. A typical day might find the salesperson calling on a hospital in the morning. There, she would check on emergency room needs, the material supplies office, and administrative offices. Afterward, she might set up a display at the hospital, next to the doctor's parking lot. Later, the salesperson might begin making calls on offices located in the immediate area. Usually, a salesperson could make several individual calls because the private offices were generally located near the hospitals. A call might be made to introduce new products to the doctor or it might simply be to check with the nurses about replenishing supplies. If the former was the case, a special time might be scheduled. Major products often required selling on the weekends.
A few products could cost as much as $60,000, whereas other products might not cost more than $1. Generally, the individual accounts placed orders for supplies that would last about two weeks. However, hospital accounts, because of the larger storage rooms, normally ordered monthly. In addition, the hospitals, which had staffs in charge of their inventory, would usually send in their order forms without the help of a salesperson. BSSI policy was to check with these people regularly whether or not they needed any additional help.
Sales Force Compensation. Bill Woodson, a marketing vice president, had the idea of examining the firm's sales force compensation. He believed two areas involving sales personnel needed improvement-sales force turnover and number of sales calls.
Sales managers did some occasional selling, but their primary responsibility was supervision and training of the sales force. Each manager had from 9 to 11 salespeople reporting to him. They were paid a straight salary that depended on their length of time with BSSI. In addition, a bonus was paid to the sales manager at the end of the year depending on how well the district had done. Salaries for all sales managers averaged $90,400 with a range of $79,000 to $117,000.
The sales personnel were paid a straight salary their first year. BSSI management felt that the first-year salesperson knew so little about selling and contributed such a small portion to profits relative to experienced sales personnel that a straight salary would benefit them more. These first-year salespeople were paid $43,000 in 1998. They are typically placed in smaller territories with relatively low sales. As they gained experience, they were paid a larger base salary that depended on the length of time they had been with the company. They also received a bonus at the end of each year according to the district's performance. The bonus equals up to 10 percent of their sales. Sales managers and sales personnel were reimbursed for all expenses incurred while selling. BSSI was proud of the fact that most of its sales force had at least bachelor's degrees, with several members having MBAs.
As Woodson looked over the sales personnel compensation policy, he wondered why his turnover rate was so high. Turnover for people working less than 18 months was 35 percent. After this turnover dropped to 8 percent. It appeared to him that many of the salespeople would get training from BSSI and then run off to competitors. He also felt that because the salespeople were unsupervised so much, they often took off early in the afternoon and possibly did not even work on some days. Woodson understood that there would be several people who would try to take advantage of this freedom. However, he believed that there was just not enough incentive to hunt for those extra sales or spend after-hours time with clients. It appeared to him that the compensation method was benefiting only persons who had been with the firm for some time. He felt there was not enough incentive to keep the really good performers. The aggressive salespersons could earn more in other companies without having to wait. For example, both American Hospital and Stevens Hospital Supply paid 100 percent commission-even for new salespeople.
Woodson considered the three basic compensation plans-straight salary, straight commission, and a combination of salary and incentives. Then he called Bill Jones, BSSI's national sales manager, to discuss the alternatives.
What would you do to correct the situation, if anything

Question 18

A company is considering the following three compensation plans. Which of these will be the most expensive Which will be the least expensive Is the monetary cost the only consideration that a company should have
Plan A -Give each salesperson a commission of 10 percent on the first $250,000 worth of sales made each year and 12 percent on the next $250,000.
Plan B -Give each salesperson a salary of $10,000 a year and 5 percent commission on all sales made each year.
Plan C -Give each salesperson a salary of $25,000 a year and a bonus of 4 percent commission on all sales made over $250,000 in a year.

Question 19

Robert Head, the newly appointed sales manager for the Dunn Corporation, completed a review of the sales force that he inherited. He knew that he had an important decision facing him regarding one of his sales representatives, John Little.
Company Background. The Dunn Corporation, with headquarters in Tuscaloosa, Alabama, produced and sold asphalt roofing products and other building materials throughout the southeastern United States. The primary market area consisted of the states of Alabama, Tennessee, Georgia, Florida, and Mississippi. There were also selected accounts in Kentucky, Indiana, and South Carolina. Five sales representatives covered the primary marketing area, with each representative having one state assigned as a territory. The selected accounts were assigned to the sales representatives at the sales manager's discretion.
Historically, the management of Dunn had pursued a conservative growth strategy with particular emphasis on achieving maximum return on investment. To keep costs down, capital expenditures for replacement of worn-out or obsolete equipment were given low priority. This led to a drop in production efficiency at the company's Tuscaloosa plant such that production was unable to keep pace with demand. Thus, from 1999 to 2003, company sales were limited by the availability of the product. However, despite these difficulties, the company was profitable and had an excellent reputation in the construction industry for service and quality.
The company initiated successful capital improvement programs during 2002 and 2003; consequently, the company's production capacity had increased greatly. No longer would Dunn's sales performance be hindered by lack of product availability. Robert Head recognized that this increase in production capacity would require some revisions in the sales representatives' duties. More time would have to be spent seeking new accounts to fully realize this new sales potential.
One of the first tasks that Head undertook as sales manager was a review of the field operations and performance of each sales representative. Head traveled with the sales representatives for a week to obtain as much information on each representative as possible. Head also spent two days with each person compiling a territorial analysis. This analysis broke each representative's district into trade areas that were analyzed in terms of established accounts, competitive accounts, potential of the trade territory, market position of competitive manufacturers, and selection of target accounts. Head believed that a properly prepared territorial analysis could reveal whether the sales representatives really knew and worked their districts. Some pertinent statistics uncovered by the analysis are reported in Exhibit A and B.
John Little's Performance. Head concluded, after reviewing the results of the territorial analysis, that John Little's sales performance could be improved. Little had been with the company for over 20 years. A tall, handsome individual with a polished, articulate manner, he appeared to be a perfect salesperson, yet his performance never seemed to equal his potential.
While evaluating Little's accounts, call reports, and expense accounts, Head uncovered a pattern of infrequent travel throughout Little's district. Little sold only 34 active accounts, well below the company average of approximately 55. With the low number of accounts and a daily call rate of two, it appeared that Little was not working hard. When Little's sales performance was compared to his district's estimated potential, it appeared that Little was realizing only about 60 percent of the potential sales of his area. When compared with the other territories, Little's district ranked last in sales volume per 1,000 housing starts and sales volume per 100,000 population.
Head questioned Little concerning coverage in his Georgia district. Head recalled part of their conversation:
Head: John, it appears that you are not calling on the potential customers in the outer areas of your district. For example, last month you spent 12 out of 20 days working in Atlanta. I know you live in Atlanta, and there is a tendency to work closer to home, but I believe that we are missing a lot of business in your area simply by not calling on people.
Little: Look, I have been selling roofing for a long time, even when the plant couldn't produce and ship it. Why get upset when we have a little extra product to sell
EXHIBIT A
Sales performance of the individual sales representatives, 2004-2005.
EXHIBIT B
Results of territorial analysis.
Head: Look, John, we have increased production by 20 percent. You will have all the product you can sell. This means extra income to you, better services to your accounts, and more profit to the company. I will be happy to assist you in working out a plan for coverage of your district.
Little: Bob, don't you ever look at the volume of our customers If you did, you would know that the Republic Roofing Supply in Atlanta is the second largest account of Dunn. Upchurch, the owner of Republic, is very demanding concerning my servicing Republic on ordering, delivery, and product promotion. It has taken a long time, but I have gained the trust and respect of Upchurch. That is why he looks to me to take care of the account. The reason that we have not lost the account to our competitors is that I give the type of service demanded by Upchurch.
Head: John, I agree that service to all of our accounts is extremely important. However, service does represent a cost, not only in terms of an outlay of money but also in the potential loss of business from other accounts. I seriously question the profitability of spending approximately 40 percent of your time with one account.
Little: What do you mean, profitability My district has always made money. Just because we have new management, why does everything have to change
Head continued the conversation by suggesting that he and Little meet at some future date to lay out a travel schedule. It was Head's intention to structure the schedule so that Little could make a minimum of four calls per day. Little, however, refused to consider setting a schedule or to increase the number of calls per day. His refusal was based on the contention that he needed at least two days a week to service Republic properly. Little further stated that if Dunn would not allow him the two days a week to service Republic, other roofing manufacturers would.
Robert Head pondered his decision regarding John Little and the Georgia territory. He felt that he had three options. First, he could simply fire Little with the possibility of losing the Republic account. Because Republic was Dunn's second largest account, Head realized that this might be a dangerous course of action. Second, Head considered rearranging Little's district by transferring some of the outer counties to other sales representatives. Finally, Head realized that he could simply accept the situation and leave things as they were now. He remembered once being told by a close friend with years of management experience that sometimes a don't-rock-the-boat strategy is the best way to handle difficult situations.
What should Robert Head do regarding John Little and his Georgia territory

Question 20

Imagine yourself a manager with a 54-year-old salesperson who consistently had poor performance for the past two years. This person has worked for the company 25 years. The person has two children in high school and one in college. The person's spouse recently quit work due to bad health. How would you handle this situation

Question 21

Discuss what kind of leadership style a sales manager should use in working with a highly motivated new salesperson and a veteran salesperson. Why