Question 1,2,&3

11. What do you think would be some potential problems in having team members rate each other as part of their performance evaluation? 12. In what respects would a compensation plan differ among salespeople for the following firms? a. A manufacturer of small airplanes used by executives b. A wholesaler of office equipment and supplies c. An automobile dealer FALCON ENTERPRISES, INC. Revising a Sales Force Compensation Plan ver the past few montha, Scott Paluch, vice Fogarty, the sales manager. These salespeople president of sales and marketing at Fakon were paid on a straight commission basis, which Enterprises, Inc, and Ron Fogarty, the sales was 6 percent of dollar sales. Further, they paid all manager neporting to Paluch, had periodically been of their own expenses. Fogarty said that the comdiscussing the compensation plan currently used for pany used this compensation and expense plan their company's sales force. Both men agreed they because Falcon was a small firm and was trying to had been talking long enough, and it was time to take kecp its operating costs as low as possible. By paysome action Falcon Enterprises was a relatively small West ing a straight commission, the company made its Coast firm with sales last your of $20 million. Fogarty believed that by being paid a straight Falcon manufactured and marketed two types of commuission, the people tended to work harder. carpet deaning machines for industrial users a They had no big salary to fall back on. basic commercial vacuum cleaner and the more The Falcon sales rep's job consists of two sets powerful extractor. Using the extractor to clean of activities. The fint involved finding distributors carpet was a relatively slow but efficient process. (janitorial supply houses) and selling the Falcon It was equipped with a very powerful motor, a cleaners to them. These were the wholesalers water tank, and a bucket that held the debris. that sold to the janitorial maintenance firms that The commercial vacuum cleaner was the usual cleaned offices and other buldings. The second type of vacuum with a bag. Its advanced features set of job duties involved activities to make the included a protocted belt that prevented it from distributor's selling effort more effective. breaking if the brushes got stuck on some object. Wributor's seling eitort more cffective. Both products were high quality and relatively a sales rep would first go to a janitorial servioe expensive Falcon sold these products to industrial that cleaned several office buildings. The rep distributors for the following prices: $8,000 for would give a sales presentation that included a the extractor and $3,000 for the vacuum cleaner demonstration of the product and then secure an Falcon's manufacturing costs for these products order. The rep took this onder to the distributor. were $5,200 for the extractor and 52,400 for the With orders from the final user alneady secund, it vacuum cleaner. The industrial distributors, which were typi- Falcon products cally janitorial supply houses, marked up the Falcon products. Once the distributor agreed to handle Falcon price 15 percent and resold the units to industrial products, it was the sales rep's job to keep that users. Most of the industrial users were janitorial distributor actively and effectively selling those maintenance firms that cleaned carpets in office products. Because most of these distributors aloo buildings, schools, hospitals, and hotels/motels. carried other brands of carpet cleaners along with The distributors also sold to building contractors - the Falcon products, the reps were constantly tryand to companies (other than supermarkets) that . ing to persuade the distributors to promote the rented carpet-cleaning equipment. In . Falcon line over competing brands. This meant The Falcon sales foree consisted of 10 people that the Falcon reps had to make frequent calls on who worked out of their homes throughout the their distributors. West Coast. Their direct supervisor was Ron To effectively sell the extractors, the reps usu- Paluch felt that the cirrent plan was generally ally had to conduct sales demonstrations at night. working well. He believed that morale problems Carpet cheaning was a wet process and therefore should be appronched through changes in the took time to dry. If the demonstration was done sales training program. Paluch talked to Denise in the evening, the carpet could dry overnight and Cole, the manager of sales training about morale not interfere with the business working day. Also, problems. Cole had done some research in attitude janitorial cleaning crews did most of their work measurement and change. She conducted sales at night. Since they were the final buyers of the training seminars for Fakcon's distributors as well Falcon extractors, demonstrations had tobe direct- as for the sales force. Fogarty folt that these semied toward them. Most of the time, the distributors nars were beneficial. He said, however, that they were not wilting to put in this extra effort. As a were not enough to handle the problems related rosult, the Falcon salespeople had to convince the to the declining morale and lack of a complete distributors of the need for these night demonstra- selling job. tions in order to maintain sales of Fakcon products. Cole believed that any problem in this situa- Three factors had triggered Paluch's and tion was not the fault of the compensation plin. Fogarty's discussions of their sales compensation She noted that the 6 percent straight commission plan. First, Fogarty noticed that some of the sales on sales volume was standard in the industry and reps were showing signs of dissatisfaction with that the Falcon reps were making good money: their jobs. He was concerned because he knew Paluch, in looking for a compromise, suggested that any decline in the sales reps' morale would increasing the commission rate another 1 or 2 adversely affect their working relationships with percent-to a total of 7 or 8 percent. He believed their distributors. that this added incentive might offset the growing Second, Fogarty was increasingly concerned problems. that the existing compensation plan failed to moti- . Fogarty felt uneasy with both Cole's and vate the salespeople to do a complete sales job. Paluch's proposals. He wondered about introducThe straight commission on net sales, he believed, ing a salary element into the plan, and/or perhaps did little to get the sales reps to make night dem: switching the base of commission from sales volonstrations or to spend time with the industrial ume to something else. Paluch was open to differusers-the janitorial maintenance firms. Fogarty ent suggestions, but he was anxious to settle the said that the plan did not stimulate long-range compensation questions. He felt that Falcon had a planning by the reps nor did it build lasting rela- good sales force. Many of the reps had been with tionships with the distributors. the company for several years and Paluch did not The third factor leading to the compensa- want to lose them now. Consequently, he asked tion discussions was a concern that the current Ron. Fogarty to come up with a solid proposal plan did not provide the sales reps with enough rygarding the sales force compensation plar. of an incentive to sell the extractors ahead of the vacuum cleaners. The extractors generated Questions: significantly more profit for the firm than did 1. Given the data provided in the case, what the vacuum cleaners. However, the extractors is the compensation of the average Falcon required significantly more time and effort to sell, salesperson? so the reps tended to focus more on selling the vacuum cleaners. In fact, about 80 percent of sales 2. Make a specific recommendation for a new; stemmed from vacuum cleaners and only 20 perbetter compensation plan for the Falcon cent from extractors. Both Paluch and Fogarty felt Enterprise sales foro. like the perent should be closer to 5050. 3. What will the average Fakon salesperson make under your new plan