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(Biomed), the family business in Thailand. On the other hand, as the new general manager of Biomed, he had some concerns about the first major decisions he was about to make and implement upon his return. Biomeds parent company, Thai Drugs Co., Ltd. (Thai Drugs), had just revised Biomeds market strategy, and the follow-on to this was the need to realign the sales compensation system to fit with the new strategy. Chiemchanya was charged with this task, and he saw high company risk and high personal risk in this situation.
Teaching objectives The overarching objective behind this case is to get students to recognize the path to designing an appropriate sales compensation plan (market strategy ( sales roles and goals ( compensation plan both level and mix). The second objective is to have students work through what is required to successfully implement such a change since, whenever management tinkers with someones wallet, there is the potential for trouble. The third objective is to have students realize that compensation cannot do everything in terms of aligning a new sales program with a new strategy.
Sales managers have to realize that the compensation plan is not the quick fix.
Other changes may be required to training, hiring, etc. to have complete alignment between the sales program and the go-to-market strategy. The case can be successfully used in undergraduate and MBA sales management courses and can also be used on executive development programs. One idea would be to team teach this case with an organizational behavior faculty member who could focus on the change issues.
This could unfold over two classes. Suggested Assignment Questions Its not necessary to revisit Biomeds go-to-market strategy, but it is necessary to become completely familiar with its premise and goals. Given this market strategy, what would you propose for a sales compensation plan What steps did you go through to get to this recommendation How will you successfully implement this change Remember you are tinkering with someones wallet. As a sales executive, is changing the compensation plan all that Chiemchanya has to do in order to tie the sales program to the new strategy TEACHING STRATEGY This case almost teaches itself, as students should be able to develop a logical path from the new market strategy to the new compensation plan. They should also recognize the implementation challenges.
It may be slightly more difficult for students to understand that compensation may not be the only component that needs to be revisited within the sales management program. Getting Started The key to getting started is to have students realize that the new go-to-market strategy is a given. The senior executive team has made the decisions and has passed these on to Chiemchanya. No time should be spent revisiting the strategy, but a bit of time needs to be spent making sure that the key components of the strategy are understood. An optional way to get started is to ask students who have worked in sales exactly how they were paid and why they think the compensation plans that emerge in the discussion are different. Then the instructor can move into the issue above. The Sales Compensation Plan At least 60 per cent to 70 per cent of the class time should be spent here. This is a case where you can have students lay out their proposed compensation plan and then have them justify the plan by helping them create the logic path of market strategy and goals ( role of the sales force ( tasks and goals for the sales person ( a compensation plan that supports the achievement of these goals.
The way that the case is written should encourage this thinking, but if such a process does not emerge from the discussion, then it becomes the instructors task to introduce it. The concepts are all explored in the case (the old plan to give a basic structure and to allow students to calculate the level of compensation for a typical sales rep the market strategy the sales role the sales tasks and goals). It might have been more challenging for students to devise some of these, however, this cannot be done in one class and the key learning is around the process/steps to a successful plan. Implementation We cannot let students stop with the design of the plan. The next section of the class has to focus on how to successfully implement the plan. This involves figuring out what the reaction of various salespeople might be as there will be a variety of reactions. For example, reps who are already focusing on drugstores, and selling the identified subset of products at good prices will see this as a no-brainer. The opposite is also true. This is also an opportunity to reinforce the difficulty of implementing changes that can potentially alter someones take-home pay. It also raises the issue of the role of the first-level sales manager as part of the change process.
Chiemchanya has to get this person on board or he is going nowhere. Other Sales Management Program Changes Even if there are only a few minutes left in class, the question needs to be raised as to whether anything else needs to be addressed within the sales management program. The more obvious ones include some training to get salespeople comfortable with the new role perhaps an assessment of sales people, in terms of their suitability for the new role the increased need for coaching, at least in the short run, to get reps focused and behaving differently and the potential role that recognition could play in bringing about behavioral change. An option here is to have the case extend over two classes, with the sales compensation plan addressed in the first class and the implementation and other changes addressed in the second class. This could then be topped off by a brief lecture on sales compensation. CASE ANALYSIS The Sales Compensation Plan Whats a bit different with this teaching note is that we have the actual process that the company followed to redesign the compensation plan.
In general, this provides the analysis for core of the case. The authors of the teaching note have added some comments in italics, which reflect on some of the process. Of course the instructor can challenge any of the ideas presented and put things forward differently in class. 1. Target Total Cash Compensation (TTCC) The first step was to define the TTCC. This is the amount that a sales representative would earn if he (all sales reps were male) achieved expected performance. TTCC should be comparable to industry norms, attractive enough to recruit new candidates, and it should meet management goals. TTCC included both cash and non-cash components. Base salary Sales commission and bonuses Benefits Contests/special rewards Recognition events Expense reimbursement The instructor can start a discussion as to which of these components should fall under the rubric of compensation. The focus of most of the discussion should be on a) and b). In this case, it was assumed that the current TTCC was appropriate. The current compensation plan generates a TTCC as shown below.
ComponentBase Salary with Commission and BonusBase SalaryBase Salary/YearTHB60,000Commission RatePerformance To GoalCommission rate1st Commission RateUp to 1001.52nd Commission RateSales beyond 1003Quarterly BonusPerformanceBonusQ1Achieve 100 of Q1 YTD GoalTHB3,000Q2Achieve 100 of Q1-2 YTD GoalTHB4,000Q3Achieve 100 of Q1-3 YTD GoalTHB5,000Q4Achieve 100 of Q1-4 YTD GoalTHB6,000Bonus for previous quarters are retro-backed when YTD goal is achieved Sales Volume YTD (THB)Expense THB /day0 500,000380500,000 1,000,0004201,000,000 2,000,0004602,000,000 and above500 This is an unusual plan since expenses are not flat, based on territory variables such as size, nor simply reimbursed. They increase with performance. This could be viewed in two ways. First, the argument could be that reps who are selling more are spending more to get these sales. Second, it could be argued that the increased expenses were some form of bonus that could end up in the sales reps pocket if it wasnt spent.
Current TTCC Expected performance is annual sales of THB2,000,000 per sales representative, therefore a) Base salary THB60,000/year b) Sales commission and bonus A sales representative who achieves 100 per cent target (assume THB2 million) will receive 1.5 per cent of sales. 1.5 2,000,000 THB30,000 A sales representative who achieves 100 per cent target will receive all quarterly bonuses. 3,000 4,000 5,000 6,000 THB18,000 Total Sales Compensation THB48,000 c) Benefits The sales force receives the same benefits as other Thai Drugs employees. d) Contests/special rewards Currently there are no contests or special rewards. e) Recognition events Currently there are no recognition events. Change in TTCC components a)Base salary and b) Sales commission and bonus The company believed that a base salary component was necessary for Biomeds sales representatives, especially if the reps were to buy into the new plan. Also, since Biomeds strategy was to focus on building good customer relationships, a salary component would encourage sales reps to think about the long term. The sales commission and bonus component was also viewed as necessary. The base salary and commission/bonus component, when combined, was to increase when compared to the current plan. Since the TTCC was to remain the same, this increase would come from expense reimbursement discussed later.
Regarding the weight of salary/commission/bonus, this issue will be discussed in the next step (Compensation Mix). c)Benefits The benefits would remain the same. d)Contests/special rewards In the past, Biomed never rewarded sales representatives by offering, e.g., a holiday trip. However, holiday trips can be a very effective motivating tool both before the trip and after. Moreover, it was felt that the motivational effect of holiday trips could last longer than cash of the same value. Biomed proposed that a holiday trip should be included into the new plan. It would be rewarded only for exceptional performance of the whole team. Thus it should not be included to the TTCC figure since TTCC is the target for sales representatives reaching expected performance.
e)Recognition events Since Biomed is a small company with 11 sales representatives, it was suggested that large recognition events might not be appropriate. Small team meetings could be used to recognize excellent performers. f)Expense reimbursement The company decided to change the expense allowance to be a true expense. The change was to adjust the allowance to a flat THB400 per day. This results in an annual expense allowance of THB96,000. Since the original expense figure is THB98,400, the 2,400 was to be added into the base salary/commission/bonus component of TTCC. Biomed thought that this change had two benefits. First, since the expense and sales compensation would be separated, the compensation plan would be easier for the sales reps to understand. Secondly, it was viewed as promoting equity since all reps would receive equal expenses.
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