Jack Dixon, sales manager, and Henry Granger, director of marketing research, of the Driskill Manufacturing Company, were in complete disagreement about the current method of preparing sales quotas.
The Driskill Manufacturing Company marketed a line of maintenance equipment used all over the country, in a variety of businesses, and had attained considerable prestige in the field. The company was comfortably successful, and its marketing effort showed no great sign of weakness. But the management, aware of external trends in motivation and control of sales personnel, and also aware of some internal friction among the sales staff, decided to scrutinize its motivation and compensation methods. Desiring the advantages of up-to-date knowledge and an unbiased point of view, Driskill engaged a management consulting firm specializing in selection, evaluation, compensation of employees, and management development to make a study of its existing practices.
The consulting firm discovered that Driskill’s current compensation and motivation practices were the result of adjustments to meet change almost on an emergency basis rather than a result of long-term planning. The original plan, adopted a number of years ago, had been continually amended piecemeal, and adequate consideration had not been given to the effect of amendments upon other provisions or upon the plan’s overall ability to promote the achievement of objectives. The result was a patchwork of policies, not an integrated program; it worked to the advantage of some sales personnel while inadvertently penalizing others.
Driskill knew that there was some dissatisfaction among the field sales force with its current practices and policies, but it did not know how strong this feeling was or how much it might affect sales. Recognizing that any new program was more likely to succeed if the sales force was given an opportunity to participate in its preparation, management emphasized that the private study would not be followed by a general announcement of sweeping changes. Instead, the study was to be based upon general cooperation and interest, involving carefully worked out changes.
The sales force welcomed the chance to have a say, and indicated approval of management’s interest in their opinions. Many of the staff brought not only a spirit of interest but lists of subjects to discuss, having given considerable previous thought to the matter. Dissatisfactions were minor, often even unrecognized. The sales force generally agreed that the company’s prices were competitive and that the product was one of quality, superior to competitors’ in design and workmanship. Commission rates were generally satisfactory. Persons on straight commission felt, however, that an increase in commission rates on the new higher-priced equipment was due because of the greater selling effort required. But the staff on salary plus commission, who sold more of the lower-priced equipment, were not greatly concerned with the matter. The salary-plus commission personnel were mostly people with less than five years service with the company.
Approximately one-third of the sales force was paid on a straight- commission basis, receiving 7 percent on all sales and paying all their own expenses. These were the older salespeople, who had been with the company longest. The other salespeople were paid on a salary-plus-commission basis. New sales recruits were started at a salary of $18,000 and received semiannual increases on a merit basis. The average salary was $25,500. Every salaried salesperson was given an annual quota and received a commission of 4 percent on all sales above the quota. In addition, Driskill paid all selling expenses incurred by the salaried sales personnel; expenses averaged $700 per month per salesperson.
Earnings of the sales staff on a salary-plus-commission basis averaged $21,000. For example, R.C. Andersen, who had been selling for Driskill for five years, had a quota of $355,000 and received a salary of $18,500. Since his actual sales were $415,000, he earned a commission of $2,400, or a total income of $20,900. R.A. Scott, who had been selling for Driskill for fifteen years, was paid on a straight-commission basis. His gross earnings were slightly in excess of the average of $29,500 in gross income earned by the commission salespeople.
Since the commission sales personnel were generally more experienced, and since their incomes we;e directly related to their productivity, management had never felt it necessary to give them specific quotas or volume goals. Quotas for the salaried staff members were based on a running three-year average of each person’s past sales. Arbitrary figures were selected for sales personnel who had not yet been three years on the job; these quotas represented a compromise between the experience of the salespeople formerly in the territory and the level of experience of the new person. Jack Dixon, the sales manager, believed that the basis for determining quotas was a satisfactory one. During the past ten years, 85 percent of the salaried sales staff had managed to exceed their quotas and earn some commission. In Dixon’s opinion, therefore, the motivation was satisfactory to achieve maximum selling effort on the part of the sales force.
Henry Granger, the newly appointed director of marketing research, was less satisfied with the existing quotas. He claimed that any good salesperson could have exceeded quotas under conditions prevailing in recent years in the industry. He also believed that the existing system, based on past sales, merely tended to perpetuate past weaknesses. He suggested that future quotas be based upon a division of the annual forecast of sales among the individual territories and that the basis for .division should be other than past sales.
Dixon supported the existing system, claiming that past sales had been an adequate basis for the establishment of quotas in the past. He held, furthermore, that if any new establishment of quota preparation were adopted, it should be based primarily on the buildup of sales estimates by the individual salespersons for the coming year.
Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.