Problem
Case study: Vehicle Importer
Brown (2001) reports how an overseas car manufacturer importing into the UK altered its sales force compensation to link with its changing business strategy. Rather than operate in the highly competitive mid-range car market, with wafer-thin margins and huge overcapacity, the firm decided to move upmarket to sell fewer but more expensive models. To achieve this aim, it introduced new models and improved its customer service in the dealerships. It also replaced the existing pay structure, which, as is common in the industry, consisted of a base salary of around £6,000 with the remainder earned as commission on product margin. This meant that sales staff were earning about £50 in commission for selling a new £15,000 car, and the only way for them to make a decent living was to compete with each other for customers, and sell high-margin accessories and financing deals. To support the new business strategy, the company substantially increased base pay levels - which were related to the demonstration of the key competencies required to build long-term relationships with high net-worth customers - and reduced the level of individual commission. It also introduced a new bonus scheme that incorporates customer performance goals as well as statistics on repurchase rates and rewards both team and individual contributions across all aspects of the dealership's activities.
Summarise the main pros and cons of relying solely or mainly on salary to reward sales staff.