How Governance costs Drive Compensation of Managers and Salespeople in Business-to-Business Field Sales

Two key issues in business-to-business (B2B) sales force management are 1) how much a given sales role should be compensated (pay level) and 2) how much of the compensation should be fixed versus variable (pay structure). We examine the paychecks drawn by people in over 14,000 selling jobs and over 4,000 sales management jobs in five B2B industry sectors in five European countries. We show how anticipated frictions inside the firm appear to play a major role in both pay level and pay structure. Decision makers in sales management appear to compromise between the economic imperative to connect pay to productivity and the sociological imperative that pay be seen as legitimate and fair to other employees. This compromise must be struck not only by those setting salespeople's pay, but also by those setting the pay of first-line sales managers. We show that both the level and nature of compensation are keyed to the job's challenge. For salespeople, more challenging jobs pay better at a constant rate, while for sales managers, pay increases at an increasing rate for job challenge. This suggests that sales managers make a particularly valuable contribution. We also show that the structure of pay appears to reflect decision makers' desire to motivate high performers, but without raising governance costs to very high levels. In particular, variable pay appears to be used as a way to delegate the most contentious compensation judgments to a third party--the customer base.