Fieldcrest division of fieldcrest mills, inc.

: Compensation system for field sales representative

Group 7- Section C Relevant case facts:

Fieldcrest brand was targeted at well-educated, fashion-conscious, affluent customers. St Marys brand was positioned for younger, price-conscious consumers who shopped primarily in mass merchandise stores. Other Fieldcrest sales came through private label, second & discounts and institutional and military. The sales department had a total of 2500 accounts. The merchandising organization was divided into five parts along the product lines. The sales organization was divided into five parts. Each was headed by a divisional vice president. There were 42 sales reps, each managing 60 on an average. These guys had varying sizes of territories, and hence number of accounts.

Post Divisional VP, Merchandise Product managers, Merchandise Sales managers, National accounts division Regional sales manager Sales representatives

Fixed salary (in $s) 27000-49000 15000-32000 20000-29000 23000-37000 10000-28000

Variable salary (in $s) 35% 20% 10% 45% 35%

Case analysis: The Merchandising organization: The merchandising organization had a design department and five product departments, one for each of the five products. Now, each of these was responsible for department profitability and mills operations. These guys received an annual salary of $27,000 to $49,000. Bonuses were given up to 35% of their salaries. Now if you look at the case, it says that sheets and bedspreads had the least sales. Retailers and consumers were moving away to the muslin blends. Now, this was a threat which was not possibly

under the control of these managers. It was probably unfair to them that they suffered salary losses to the tune of 25% because of these factors. An enterprising manager here could have earned less compared to other managers of the stature. These managers were also earning less than their counterparts in the sales organization, which is probably not the best of ideas. A similar problem exists with the product managers who rose through the sales organization- they earned less than their peers in sales and were given bonuses based on factors which were beyond their control. The issue was graver because people in both the divisions rose through the sales force. Apart from this, the privileges given to the sales force is also higher than this organization. Accounts: Big or small?: The organization says that it wants to focus on the big and fast growing accounts. However, the merchandise managers are probably not very sure about this, with one bedspread department managers saying that they should reduce their dependence on so few customers. Let us estimate the percentage revenues from the big accounts. One could say that most of the private labels were big accounts. Possibly, 20% of their sales came from the big accounts. There is no mention of the target accounts, but they probably constituted a similar figure of accounts, 20-30%. The Sales Organization: The compensation for field sales representatives stands at $10,000-$28,000 plus 35% as bonus based on a set of parameters. The most controversial parameter here is the points earned based on sales to a few target accounts. These target accounts were defined as the ones which the management felt offered the best opportunities for increased sales. Let us look at the demerits of such a system: This system encourages the salespeople to target a few high growth accounts and ignore the rest of them. This would probably mean developing around 30% of the accounts (by revenues) for the present and future, but not focussing on the others (some which might be of high value and be providing a constant source of income). The weightage allotted to the other accounts is typically very low. This might lead to decrease revenues. The problem is exaggerated for salespeople having large territories. It might be all the more difficult for them to cover the smaller accounts, as compared to the people with smaller territories. The target accounts were largely decided by the sales representatives themselves, who might be biased towards accounts which they knew would give them good growth. This discouraged them from hunting for higher potential growth accounts. There were other issues when the top management selected these target accounts. They did not always have knowledge about target accounts, as they spent very little time on them. There were three sales managers- each of them typically had 15 salespersons under them. Now, around 40% of their time, i.e. close to 100 days were spent with them. 7 days a year could have best been used to visit 7 accounts. 7/60 for judging which are the target accounts is not a very good idea. This also means that more than 50 accounts (average 60 for each) of every salesperson were probably being ignored. This is not a very good strategy.

Far too much weightage was given to these target accounts. 75% of a salespersons bonus depended on these target accounts, which meant ignoring other parameters for bonus from the side of employees.

The next parameter was the product mix. Now this criterion was strange, given that it measured the variability of product sales from the average that a salesperson sold. This was not a very logical thing to do. It rewarded employees with low sales across all parameters. It rewarded them more than salespersons who sold four product lines to full potential, but not the fifth one. This was wrong, as sales across regions could also vary. The other three parameters are a little subjective and can depend on the whims and fancies of the managers. An element of partiality would definitely creep into this. However, the good thing is that its given just 20% weightage in determining the overall bonuses. One criticism against the compensation system is that it did not encourage opening new accounts. Now this is not valid for the Fieldcrest accounts, as their strategy did not consist of opening new accounts, but rather of focussing on the current accounts. However, St.Marys did not have a strong distribution system, and should have a component of opening new accounts to the overall bonus section. This would probably help push up sales, given the kind of experience the Fieldcrest salespeople had. Coming to St. Marys compensation, they had 20% weightage to subjective tasks which were predefined by the bosses. This was sometimes a problem, because situations beyond a sales reps control sometimes prevented accomplishment of tasks. Besides, its not very clear as to why there is this differentiation in the bonus structures of Fieldcrest and St. Mary. The new proposal to tie the bonuses more closely to bedspread sales has been opposed by the salesforce because of the fact that theyve already reached saturation levels. Their popularity, tied to sheets has only been decreasing, with new material coming into the market. The move would effectively reduce bonuses for them, something which has already been at not-so-high levels. Bonuses range from 32% of potential to 76% of the potential- but the mean stands at only 53%. This is definitely not done, and a change in the bonus system is probably required. Suggestions: The bonus system needs to be normalized, with the highest points being mapped to the 100 percentile range, and so on. This would probably push up the bonus bill by over 30%, but it should pacify apprehensions about the system. The target accounts system certainly needs a change to either a percentage of potential sales (from all accounts), or a target sales for the entire territory. A focus on all the products is required, and not just on the fastest growing ones. There is a lot of subjectivity in 20% of the evaluation. This can be changed by having more people evaluate for the same. A parameter for new accounts needs to be introduced in the case of St. Marys to expand the current distribution channel. The product mix criterion has to go out of the window. As for the bedspreads and sheets, the solution probably does not lie with linking it with bonuses. It has to do with some of the Ps of marketing- product and price.