Houston Fearless 76 : The Sales Incentive Plan Modification Proposal
Introduction
This report focuses on the sales function and incentive systems of Houston Fearless 76, Inc. (HF76). First, some background information and strategic objectives of the company will be provided. Then, analysis will be made on the current sales incentive plan and the proposed new incentive plan along with some recommendations on implementation of the new plan and other managerial issues.
Company Background
Houston Fearless 76, Inc. is a medium size manufacturing company that provides designing, manufacturing, marketing, and servicing of high quality micrographic and photographic products. Customers range from companies in banking, healthcare, and movie industries to government entities.
HF76 has different strategic objectives for different products. For products in the emerging and growing markets, sales force should identify new customers and new markets. For products in the mature stage, sales force should utilize the company brand name and maintain sales in the niche market.
Even though HF76 has roughly $15 million in sales annually, its profit margin has declined over the years and the management is very concerned. The management realizes that the main cause of this problem is the mismatch between company objectives and sales force incentives due to inappropriate performance measure and different compensation structures for different products.
The Old Sales Incentive System
The old sales incentive system uses a combination plan - a base salary plus commission - to pay salespeople. The base salaries range from $40,000 to $60,000, while the typical commissions earned are approximately 50% of base salary. A bonus system is also in place for sales assistants for reaching the overall sales goal.
The idea of using a combination plan is good since it provides flexibility by relating incentives to accomplishment of less quantitative objectives, such as customer satisfaction, as well as sales volume. It also provides salespeople with a more stable
This report focuses on the sales function and incentive systems of Houston Fearless 76, Inc. (HF76). First, some background information and strategic objectives of the company will be provided. Then, analysis will be made on the current sales incentive plan and the proposed new incentive plan along with some recommendations on implementation of the new plan and other managerial issues.
Company Background
Houston Fearless 76, Inc. is a medium size manufacturing company that provides designing, manufacturing, marketing, and servicing of high quality micrographic and photographic products. Customers range from companies in banking, healthcare, and movie industries to government entities.
HF76 has different strategic objectives for different products. For products in the emerging and growing markets, sales force should identify new customers and new markets. For products in the mature stage, sales force should utilize the company brand name and maintain sales in the niche market.
Even though HF76 has roughly $15 million in sales annually, its profit margin has declined over the years and the management is very concerned. The management realizes that the main cause of this problem is the mismatch between company objectives and sales force incentives due to inappropriate performance measure and different compensation structures for different products.
The Old Sales Incentive System
The old sales incentive system uses a combination plan - a base salary plus commission - to pay salespeople. The base salaries range from $40,000 to $60,000, while the typical commissions earned are approximately 50% of base salary. A bonus system is also in place for sales assistants for reaching the overall sales goal.
The idea of using a combination plan is good since it provides flexibility by relating incentives to accomplishment of less quantitative objectives, such as customer satisfaction, as well as sales volume. It also provides salespeople with a more stable