Mini Case: Getting the Best from Your Salesforce

Safi manages a team of elite sales representatives at a mid-sized software company. Due to technological changes, their main document management product has become largely redundant. The old product helped companies manage complex libraries of data such as their patents, the technical specifications of their products, and policy and proceduremanuals. The new content management product handles similar tasks, but with an important innovation: it also helps companies manage the largest and most complex websites, websites that have many authors contributing simultaneously. It even permits companies to tailor their websites to different audiences on the basis of individuals' browsing histories and their relationship to the organization (customer, supplier, or partner).

Since these software systems are complex and customized to each organization, it usually takes 7-9 months to close a dealthat is, from the first contact with the customer to the end, when the system is installed and the client receives training.

Safi has noticed that the sales reps aren't really pushing the new product and sales are sluggish. The sales reps get a small salary (about $22,000), but on average 65-85 percent of their total income comes from commission. The old product has commission rates of 6 percent for new sales and 15 percent for annual maintenance contract renewals. The new product has a commission rate of 6 percent for new-product sales and 10 percent for annual maintenance contract renewals. Renewals for both products are required for ongoing access to technical support services and are therefore considered mandatory by the overwhelming majority of their customer base. The existing customer base is quite large; it is possible to achieve the minimum acceptable sales quota by selling only renewals in some territories. Achieving quota is the single most important thing, and is what sales representatives receive public recognition for at their quarterly sales meetings. New deals are considered much more prestigious than contract renewals, but they are also more risky. The average new deal is worth anywhere from $100,000 to $450,000, but such deals can take months to close and some fall through at the last minute. Renewal prices are based on the value of the original contract and range from 5 percent of the original purchase price to 12 percent, depending on the level of service desired.

Sales territories are reviewed and changed annually on the basis of the organization's strategic goals. For instance, in the previous year the CEO had decided that the federal government was a key target client. This resulted in all federal sales leads being reassigned to a single government sales specialist rather than being assigned based on geographic territory, as had been done in the past. The geographic territories were sometimes reshuffled as well to reflect changes in demand. Silicon Valley, for example, had been made its own territory two years previously, much to the chagrin of the California sales rep. The Maritime provinces were lumped with Quebec at the same time, creating one territory where there had previously been two.

Reviewing the sluggish sales, Safi began to wonder whether there was something wrong with her compensation and recognition system. She knew she had an elite and capable team with a proven track record. They had been thoroughly trained and coached, so the poor sales of the new product probably had more to do with motivation than knowledge or ability. Looking over the existing incentive package Safi decided that she needed to . . .

Discussion Questions

1. Which is the strengths and weaknesses of the existing compensation system? Could the compensation and recognition system be contributing to poor sales of the new product? If so, explain how.

2. How might people alter the existing compensation system to help the organization better realize their goals? Why the system would be effective.

3. Are there any organizational justice issues with the current compensation process? If so, what are they? How might they impact employee attitudes and performance?