A STUDY OF SALES COMPENSATION IN THE ETHICAL PHARMACEUTICAL INDUSTRY, ITS ASSOCIATION WITH SALES EFFECTIVENESS, MANAGERIAL CONTROL; JOB REQUIREMENTS AND SALES MANAGERS‘ ATTIT‘UDES TOWARD COMPENSATION CRITERIA Thesis for the Degree of D. B. A. MICHIGAN STATE UNIVERSITY Gary A. Marple 1963 IHESIS LIBRARY Michigan State University This is to certify that the thesis entitled A Study of Sales Compensation in the Ethical Pharmaceutical Industry: Its Association With Sales Effectiveness, Managerial Control, Job Require- m ents and Sales Manager 3' Attitudes Toward Compensation Egiteria presente Gary A. Marple has been accepted towards fulfillment of the requirements for Marketing and Transportation Administration Graduate School of Business Administration // f2 / Major professof I- Date / "'"r‘J-i ---I7/llv=7-?*-;: fig? ./ ' 0-169 - . .1— -rv- w".-'-C~i ' 1” 4 _. “’4“ _ -¢v—- "v'm‘ ' '74.,_._.h-n.-H._...4 F _~ _ — --.._—444 .C 71. ABSTRACT A STUDY OF SALES COMPENSATION IN THE ETHICAL PHARMACEUTICAL INDUSTRY: ITS ASSOCIATION ' WITH SALES EFFECTIVENESS, MANAGERIAL CONTROL,- JOB REQUIREMENTS AND SALES MANAGERS' ATTITUDES TOWARD COMPENSATION CRITERIA by Gary A. Marple The topic of this research is the association between sales compensation and various estimates of the marketing success of ethical pharmaceutical manufacturers who engage in presenting product information to physicians. Specifically, three subjects were investi- gated: 1. What are the existing sales compensation policies and practices of ethical pharmaceutical manufacturers? 2. -Is compensation associated with various estimates of marketing effectiveness such as sales growth and product conc entration ? 3. .What are the attitudes of sales managers toward the well- known criteria for designing compensation programs, namely, security of income, fairness to the company and the'salesman, and incentive toperform the job? Furthermore, are these attitudes related to the company's compensation level? The ethical pharmaceutical industry was selected due to its policy of not advertising to consmners and its necessity to provide a careful sales presentation to the prescribing physician. .While exceptions can be fox :U‘ICI o‘“ . ENC: UH” all Of Gary A. Marple be found to these rules, they are nevertheless the ground rules generally followed by the industry. While the industry describes itself as having more than eleven hundred members, forty-six firms which are primarily engaged in ethical pharmaceutical manufacturing and selling account for virtually all of the industry sales to wholesalers and pharmacists. The remainder is found in interplant sales to suppliers, generic manufactures by whole- salers and extremely small firms, sales to governments, and products manufactured by small firms which are distributed and promoted by the large firms. A stratified sample of thirty-three firms was selected, with twenty-eight responding. The composition of these twenty-eight respond- dents by market share was as follows: The three largest firms in the industry responded and accounted for twenty and one-half percent of domestic ethical sales; seven of the next largest nine were included in the sample, all responded, accounting for twenty-seven percent of domestic industry sales; and finally, eighteen firms accounting for approximately twenty-two percent of industry sales responded. - All five of the firms which did not respond belonged to this last stratum. \The questionnaire was constructed, pretested and revised for final administration. Twenty firms were interviewed using the questionnaire as a, structuring device. Eight firms were not personally interviewed, but returned the completed questionnaire by mail. - Methods of analysis were the familiar two-by-two contingency tables, two-by-two-by-two contingency tables, rank correlation and scalogram analysis. The two-by-two tables utilized chi-square measures of significance while the two-by-two-by-two tables were analyzed factorially. All methods, excepting scalogram analysis, were based on A. E. -Maxwell's work, Analysing Qualitative Data (London: Methuen and: Co. , ' Ltd. , 1961). 10p paic I» .L G ary A. Marple The ethical pharmaceutical industry can be characterized as highly promotion-oriented, having one detailman for every fifteen physicians in the United States. The» firms predominantly encourage their men via incentive compensation; the most frequently used plan is salary plus commission, and the next most frequently used plan is salary plus bonus. The ethical pharmaceutical detailman is well-paid, in 1961, the top paid ten percent earned approximately $10, 810. 00 per annum, the lowest paid ten percent earned $6, 270.00, and the over-all average of detailmen's income was $8, 115. 00. In addition, he is well provided for in terms of fringe benefits, with all firms offering pension plans, comprehensive medical and hospital insurance, and life insurance. In only two. cases did the detailman have to pay for one or more of , these services wholly on his own. In all other cases, the company paid forxthe complete cost or shared on a fifty-fifty or better basis. In all cases, the salesman was provided an automobile at company expense. In five firms the automobile was used as an incentive, allow- ing the successful or long-service detailman to select an automobile of greaterrvalue than one of the low-priced three. I In addition, his reasonable expenses in the course of doing business were reimbursed and not deducted from his commission income. -On the average, the detailman‘s product line obtained 37.0% of its sales from two products. Furthermore, he was often found competing against other companies and their detailman who sold the same product with .a different brand name. Sales managers have become increasingly aware of the need for soundrp'ersonnel policies and procedures as evidenced by the shift in number of firms using job descriptions, and the increasing sophistication of evaluation procedures. However, the firms have considerable room Gary A. Marple for improvement in this area, as evidenced by the lack of completeness in job descriptions, roughly formulated standards of performance, and a lack of behavioral science measurement methods. Sales managers felt that the most important criteria for design- ing a sales compensation program were: (1) the program should be fair to both the company and the salesman; (Z) the program should pro- vide incentive to the salesman to perform his job requirements; and (3) the program should be understandable to the salesman. When asked to answer attitude questions regarding fairness, security, and incentive values, the areas regarding fairness and incentive (rated (1) and (Z) in importance) were the least clearly formulated and agreed upon by sales managers. Managers as a group could not decide on a common defini- tion of fairness, and their attitudes toward the subject were non-linear. .Similarly, they were not clear on a common meaning of incentive values, nor did they hold a linear attitude toward incentives. Only on the criterion which they had rated low in importance had they formulated a linear opinion and attitude, namely, the criterion of security. Prudent acceptance levels found that: (1) high and low time- discretion requirements of the detailman's job are significantly associ- ated with high and low average compensation levels; (2) high and low managerial control is not significantly associated with high and low turn- over, high and low average compensation, or high and low time-discretion requirements of the detailman's job; (3) high and low time-discretion requirements of the detailman's job are not significantly associated with high and low turnover; and (4) while there was not a significant categori- cal association with high and low average compensation level with” high and low turnover, rank correlation analysis indicated a significant nega- tive association between turnover rankings and average compensation rankings of the firms. VAQ blnr .‘n'e. VLC ‘h Gary A. Marple Similar prudence in factorial analysis of product concentration, managerial control, compensation level, attitude score, and time- discretion required by the detailman's job indicates that: (1) managerial control, in the presence of product concentration and compensation level, . is not a significant explanation of sales growth; (2) compensation level, in the presence of managerial control and product concentration, is not a significant explanation of sales growth; (3) product concentration by itself is a significant explanation of sales growth, but, when in the presence of managerial control and compensation level is not a signifi- cant explanation; (4) the lack of managerial control, when accompanied by low product concentration and a low attitude score, is significantly associated with low compensation levels; (5) attitude score, in the presence of product concentration and time-discretion requirements of the detailman's job is a significant explanation of compensation level; (6) product concentration, in the presence of attitude score and time- discretion requirements of the detailman's job, is a significant explana- tion of compensation level; and (7) time-discretion requirements of the detailman's job, in the presence of attitude score and product concen- tration, is a significant explanation of compensation level. ~ Copyright by / GARY ANDRE MARPLE 1961. De A STUDY OF SALES COMPENSATION IN THE ETHICAL PHARMACEUTICAL INDUSTRY: ITS ASSOCIATION WITH SALES EFFECTIVENESS, MANAGERIAL CONTROL, JOB REQUIREMENTS AND SALES MANAGERS' ATTITUDES TOWARD COMPENSATION CRITERIA By I xi" Gary AII Marple A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF BUSINESS ADMINISTRATION Department of Marketing and Transportation Administration Graduate School of Business Administration 1963 lane. .T u i u€ .Jm: ('9 ‘ ”n5 a. ...;t I I-‘ 3:1, . - v .ndo (y SH“! PREFACE This dissertation is a result of what might be termed "an evolu- tion by looking backward.- " During my doctoral course work, I have had the privilege of teaching courses in Salesmanship and Sales Management. Two subjects which, I must confess, did not appeal greatly to me at the time. While preparing material for these courses, I was impressed by the fact that the oldest field in marketing had the smallest body of soundly researched literature. This was truly the end of the marketing spectrum where everyone was his own expert because "'everybody has to sell himself. " While working with students, sales managers and others who were interested in or involved in sell- ing, a number of potential dissertation topics presented themselves. Consequently, the selection ofgrfi topic was a most difficult task. A number of things contributed to the selection of salesmen's compensation as a topic for a dissertation. One was that many stu- dents and colleagues questioned the importance of sales compensation as an effective instrument of marketing management. Another was that sales managers differed radically in their opinions regarding the value of different plans, even within the same industry. In attempting to find answers to these questions, it became apparent that here was an area of needed research. Consequently, when an anonymous donor indicated an interest in sponsoring a survey of sales compensation policies and practices in the ethical pharma- ceutical industry, the survey became the vehicle to explore and test associations between compensation and marketing effectiveness. The purposes of the research were to: (a) comprehensively survey the sales compensation policies and practices of ethical ii 213196 A R... I Pl. unvol 1.28 CD} . 1 ‘:’- o ..:: LI ('0 nr 1" pharmaceutical manufacturers who promoted and sold through a detail sales force; and (b) conclusively analyze the association between compensation and company marketing effectiveness. However, as is often encountered in social research, exogenous variables limited the conclusiveness of this study. The most important of these was the industry's sensitivity to answering questions regarding dollar sales and profits. This can be understood in light of the fact that the United States Senate'Subcommittee on Antitrust had finished its investigation less than one full year previous to this study and was at the time draft- ing a drug industry antitrust act. For this reason, a number of tests important to achieving the second purpose stated above could not be performed. While this leaves the study more in the realm of explora- tion than conclusion, the methods used, conclusions actually derived and the implications apparent in the actual strength of collected data should be of interest and importance to those attempting to evaluate the effectiveness of compensation. -Another item which also deserves mentioning here is the nature and financing of this research. Mr. John Wieland, a fellow doctoral student, wished to test an hypothesis involving the marketing concept and information flowing to and from the field sales force. A donor, who wishes to remain anonymous, gave equal research grants to John Wieland and myself for the purpose of conducting our research in the ethical pharmaceutical industry. The original plan called for separate surveys. However, many problems, including length ofquestionnaire, bias by one questionnaire preceding another, and the doubling of various costs of collecting the data, led Mr. Wieland and me to the decision of joint data collection. This shortened the estimated time for the re- spondent to complete the questionnaire by approximately one hour and reduced the number of manhours required for the responding firms to iii .F-l :i data < 1 rezoonc assemble accounting data, not to mention cutting our costs of postage and secretarial time per respondent by almost one half. Consequently, the $1, 500. 00 grant covered all phases of this dissertation from inception to completion as well as allowing the more precise method of data collection by interview to be used in the case of twenty respondents. In seeking out secondary sources of information I became acquainted with the very excellent and fascinating works of Elliott Jaques entitled Equitable Payment. Since studying his works, my thinking has been considerably revised and I believe that a meaningful behavioral- economic integration between the macro and micro aspects of compen- sation is not too distant. -Finally, I am forever indebted to all who assisted in making this dissertation project a reality. In particular, my thanks go to Dr. Duane Gibson of Michigan State University for implanting some important thoughts, the derivatives of which are evident in my writings; the many sales managers and their staffs who gave willingly of their time; John Wieland who served both as loyal opposition and fellow researcher; my wife, Sandra, who truly performed as an able research assistant; Doctors Frank Mossman and David Moore who have given their guidance and criticism as dissertation committee members; and most of all to my dissertation chairman, Dr. William-J. E. Crissy. iv I . u at -: 11mm l 391‘? A Au. Ill TABLE OF CONTENTS Page PREFACE O O O O O O O O I O O ....... O O O O O O O O O 0 ii LISTOFTABLES.............. .......... vii LIST OF EXHIBITS ................ . . . . . . . x LIST OF APPENDICES . . . . . . . . . . . . ........ . xii Chapter I. INTRODUCTION . . . . ....... . ........ l The Nature and Concern of the Study Sales Compensation as a Field of Study Purposes of the Study Topics Investigated Format of the Study II. RESEARCH DESIGN ...... . ........... 9 The Nature of Variables for an Ex Post Aggregate Study The Sample Survey Method Tests III. PRESENTATION OF SURVEY FINDINGS . . . . . . . 18 Compensation Plans Used Salesmen's Job Descriptions Fringe Benefits Used Automobile Acquisition Policies Expense Accounts Number of Detailmen Salesmen's Evaluation Procedures .. 1.3.1316? BIBL’ .0; TABLE OF CONTENTS - Continued Chapter Page Monetary Compensation Payments Product Concentration Sales and Profits IV. ANALYSIS OF SURVEY DATA . . . . . . . . . . . . 31 Scalogram Analysis of the Attitudes of Sales Managers Analysis of Potential Associations Between Managerial Control, Job Requirements, Turnover, and Income Factorial Analyses Relation of Findings to General Conclusions of Other Studies V. SUMMARY AND CONCLUSIONS ........... 53 An Appraisal of the Research A Summary of Main Findings A Guide for Sales Managers Interpretive Conclusions a BIBLIOGRAPHY . . . . . . . . ......... . . ..... 198 vi WMJ P.'PQ‘ 4.1.8 (1 Table 10. ll. 12. l3. 14. LIST OF TABLES Page Methods of Compensating Detailmen . . . . . . . . . . 18 Usage of Salesmen's Job Descriptions . . . ...... 19 Fringe Benefits ........ . .......... . . 20 Automobile Acquisition by Source ........... 21 Criteria Used in Compensation Evaluation ....... 24 Criteria Used in Formal Evaluations . . . . . . . . . 25 Annual Compensation Payments for the Pharmaceutical Industry,l956andl961............... 26 Domestic Pharmaceutical Sales Figures 1954, 1958 andl960.......... ............. Z9 .Profits After Taxes, 1949-1961 . . . . . . . . . . . . 30 Incidence of Turnover in Firms Categorized as Having High and Low Managerial Control of Detailmen's ACtivitieS O O O O O O O O O O O O O O O O O O O O O O 38 Incidence of High and Low Compensation Level in Firms Categorized as Having High and Low Mana- gerial Control of Detailmen's Activities . . . . . . 38 Incidence of Highand Low Time-Discretion Require- ments in Firms Categorized as Having High and Low Managerial Control of Detailmen's Activities. 39 Incidence of High and Low Time-Discretion Require- ments With High and Low Turnover Figures . . . . 40 Incidence of Highand Low Time-Discretion Require- ments With High and Low Average Compensation Payments O O O O O O O O O O O O O O O O O O O O O O 40 vii b—‘II ' V.’ L331 '- -‘ .R. 4.1.8 “\I kg ‘1) (\J 0...: o T n L LIST OF TABLES - Continued Table 15. 16. I7. 18. 19. Page Incidence of High and Low Turnover in Firms Cate- gorized as Having a High or Low Average Compensation Level ...... . . . . . ...... 42 Incidence of Managerial Control, Product Concen- tration and Compensation Level with High Sales Growth of Sample Firms ....... . . ...... 43 Incidence of Attitude Score, Product Concentration and Managerial Control in Firms with an Average Compensation Level Above the Mean for Detailmen 44 Incidence of Attitude Score, Product Concentration and Time-Discretion Requirements of Job in Firms with an Average Compensation Level Above the Industry Mean for Detailmen ..... . . ..... 45 Significance of Association of Managerial Control, Product Concentration and Compensation Level with the Sales Growth of Sample Firms . . . . . . . . . 47 Significance of Association of Managerial Control, Product Concentration and Attitude Score with ' Compensation Level of Sample Firms ....... 48 Significance of Association of Attitude Score, Product - Concentration and Time-Discretion Requirements of Job with Compensation Level of Sample Firms . 48 Domestic Ethical Pharmaceutical Market Shares-- 1959 O O O O O O O O O O O O O O O O O O O O OOOOO 72 -Sales Managers' Rankings of Criteria Used to Evaluate Detail Salesmen Regarding Determination of Compensation..,..................140 Criteria Used in Formal Evaluations. . . . . . . . . . ‘ 141 Sales of Each Firm's Two Largest Selling Products Expressed as a Percent of the Firm's Total Sales for 1956, 1961 O O O O O O O O O O O O O O O O O O O O 162 viii ""T C -A LIST OF TABLES - Continued Table 26. 27O 28. 29. 30. 31. 32. Page Scalogram of Replies on Security Inventory ....... 171 ,Scalogram of Replies on Incentive Inventory ...... 173 Scalogram of Replies on Fairness Inventory ...... 175 Rank Correlation of Firm's Scores for Attitude Inventories ..... . . . . ...... . . ...... 177 Factorial Analysis Procedure for Table 16 Data . . . . 183 Factorial Analysis Procedure for Table 17 Data . . . . 186 Factorial Analysis Procedure for Table 18 Data . . . . 189 ix “Ligflafié . 1 LIST OF EXHIBITS Exhibit 1. .Cover Letter for Mail Sample . . . . . ........ 2. .Cover Letter for Interview Sample ....... . . . 3. Questionnaire Used in Research-—Final Form 4. Example of Salary Incentive Compensation Program . 5. Example of a Compensation Program Paying a Salary Plus Commission on Particular Product Sales 6. . Example of Compensation Program Paying a Salary Plus Commission on Weighted Product Sales OverQuota........ ....... 7. - Example of Compensation Program Paying a Salary ‘Plus a Bonus Based on Profit of the Sales DistriCt O O O O O O O O O O O O O OOOOOOOO 8 . Specimen of the Least Complete Job Description in theSample.... ........... 9 . Specimen of Job Description Typical of the Industry . 1 0 . Specimen of the'Most Complete Job Description Excluding Standards of Performance . ..... . . Specimen of Standards of Performance Section of a JOb Description O O O O O O O O O O O O O O O O O O . Detail Salesman's Evaluation Procedure Focusing on Total Performance and Development. . . . . . . . .Detail Salesman's Evaluation Procedure Focusing on Specific Sales and Job Performance Criteria . . Page 79 80 81 106 107 110 114 120 122 124 132 142 149 TOFE misfit 11‘ V In: 10, .7 18 39"}... Eli I» l .1.» LIST OF EXHIBITS - Continued Exhibit 14. 15. 16. 17. 18O 19. 20. Drug Operations Only--Breakdown of Sales Dollar-- 20 Major companies-'1958. e e o o o e o o o o o o 0 Drug Companies' Net Profits After Taxes as Percent of Sales (1952-1959) .................. Drug Companies' Rates of Return (After Taxes) on Net Worth 1952-59. . ................. Security Inventory Questions .............. Incentive Inventory Questions ..... . . . . . . . . . Fairness Inventory Questions ........ . ..... Item Analysis of Inventory Scores ........... xi Page 158 159 176 Tr‘grfirfl i LIST OF APPENDICES Appendix Page II. III. IV. VI. VII. VIII ‘ IX. XI. SAMPLE SELECTION O O O OOOOO O O O O O O O O O 69 DESIGN AND ADMINISTRATION OF THE QUESTION- NAIRE ....................... . 74 I COMPENSATION PLANS USED ............ 102 DETAIL SALESMEN'S JOB DESCRIPTION ...... 118 PERFORMANCE EVALUATION PROCEDURES. . . . 138 . COMPENSATION PAYMENT SURVEY ........ 153 INDUSTRY SALES AND PROFITS . . . . . ...... 156 PRODUCT CONCENTRATION ............. 161 ATTITUDES OF SALES MANAGERS TOWARD COMPENSATION CRITERIA . . . . . ....... 169 .ANALYSIS or 2n CONTINGENCY TABLES . . . . . . 181 THE THEORY OF TIME-DISCRETION ABILITY AS A UNIT OF MEASURE IN JOB PERFORMANCE .AND CONSUMPTION BEHAVIOR . . . . . . . . . 192 detail sale Bro; 31in exch (tired, CC Litrformar 151a of. Reg mi, the in SIIEmP Shem CHAPTER I INTRODUCTION Nature and Concern of the Study The general concern of this study is the relationship between monetary compensation and performance effectiveness. Specifically it is concerned with relationships between sales compensation and marketing effectiveness of ethical pharmaceutical firms employing detail salesmen to promote their products to physicians. Broadly conceived, compensation is identified with the theory of an exchange basis of elementary social behavior.1 Narrowly con- c eived, compensation refers to money payments to employees for the pe riormance of certain tasks. An essential problem in either case i S that of determining an equitable basis for calculating payment. Regarding monetary compensation, which is the focus in this study, there have been many approaches taken throughout history in an attempt to determine an equitable measure for calculating money pannents. Early attempts range from those of Hammurabi, 2 who aArt-erupted to codify wage payments, to the medieval writers concerned \ H 1An exchange basis of human behavior is the thesis of George Romany book, Social Behavior: Its Elementary Forms (New York: arcourt, Brace 81 World, Inc., 1961). l 2C. H. W. Johns, ~ "The Code of Hammurabi, " Babylonian and Nun Laws, . Contracts and Letters (New York: Charles Scribner's 1'18. 1904), pp. 44-66. 1.5:. "just w stern from 1 With t it suonly c .1 F0110 PTICuctivi‘. Accc 95.111 the 1 STIR'IH ‘ ‘- “J'I” the? with "just wages. " The latter argued that the amount of payment should stem from position in the status hierarchy.3 With the coming of the Industrial Revolution, the so-called classi- cal wage theories were developed. ~ Adam Smith, Thomas Malthus, David Ricardo and John Stuart Mill contributed to the classical position which held that in the long-run, wages were just sufficient to reproduce the necessary labor, while in the short- run, wages were dependent on the supply of labor and amount of the wages fund available to buy labor.‘ Following the classical position, Carl Menger, vWilliam Jevons, and Marie Walras developed the marginal utility approach to value theory. ‘At the same time, Alfred Marshall also was deve10ping marginal theory applied both to supply and demand. The position of the marginal prroductivity theory of wages was put forth systematically by J. B. Clark in 1899, and is essentially the basis for modern day marginal PrOductivity theories.5 According to this theory, given perfect competition, wages will equal the marginal product of its labor. However, Mrs. Robinson has shOWn that under conditions of imperfect competition labor (any resource) can be both under-employed and underpaid while the product coming from that labor can be overpriced and lead to a disproportionate value being placed upon it as compared to the competitive case.6 \ , '1‘ 3John W. Baldwin, "The Medieval Theories of the Just Price, " r mactions of the American Philosophical Society, New Series, 01- .. XLIX, Part 4, (July 1959). ‘W 4A concise treatment of this is to be found in David W. Belcher, Wand Salary Administration, 2nd ed. ; (Englewood Cliffs, ~N. J.—: 1‘ entice-Han, Inc., 1962), pp. 30-32. so 5P. C. Newman,'A. D. Gayer, and M. H. Spencer,-(eds.) N'Readings In‘Economic Thought (New York: W. W. Norton 81 Co. , Q - . 1954), pp. 347-360. 6Joan Robinson, The Economics Of Imperfect Comjetition (London: illan 81 Co. ,' Ltd. , 1959),. Chaps. 25 and 26. Match) Frc 1110:3111: Tm- ~ :11: anc‘ icxeve E 1515.6 55 From the perspective of economics, money is the common denominator of measurement, so that even in the perfectly competitive case, money may not be an accurate estimate of the value of the product or-the labor due to the assumption of supply and demand constraints. Alternatives to this problem have been posed by institutional theorists, 7 aswell as persons not primarily concerned with wage theory. 8 One outstanding alternative, developed by Elliott Jaques, 9 offers the possibility that the exchange basis of society and the equitable level and amount of payment are all related to an individual's time-discretion Briefly, this refers to an individual's ability to achieve goals capacity. over a certain time period. For example one individual may be able to plan and organize the required sequence of activities necessary to achieve specified goals a year hence, while another may only be able to do the same for a three month period. This will be referred to in this Study as an individual's time-discretion capacity or ability. . Similarly, the job can be described in terms of time-discretion C a’I’acity required of the employee.10 Jaques' assertion, based on sound re 8 earch, is that wage and salary differentials among jobs Should follow tilTile-discretion differentials required by the jobs;11 the longer the time- di SC :retion required, the higher the level of compensation. Such a theory 1:- . . . e:rllcwes the requirement of monetary estlmatlon of the value of \ . N 7See for example, George W. Taylor and Frank C. Pierson (eds.), &Concepts In WaLe Determination (New York: McGraw-Hill Book or 9 Inc., 1957),. Chaps. 5 and 6. Cf. , Chris Argyris, UnderstandingOrganizational Behavior 8 The Dorsey Press, Inc., 1960). (H QIflnewood, Ill. : 9Elliott Jaques, Equitable Payment (New York: John Wiley 81 Sons, I I)": - , 1961). A synopsis of his theory is contained in Appendix XI. l°lbid., p. 99. -See also Appendix XI. “lbid., p. 166. EA. "L‘FI match) require 1 :etermln As productivity related to the input value of the job. As such, it does not require the economic constraints of supply and demand in wage determination. As an observation, it would appear that in terms of theory formu- lation a basis for integrating social exchange, economic exchange, and compensation is being developed. However, for the present, they are in an unanswered state of flux and are of critical importance to organi- zation theory, economic theory, and practical business management. The present day manager is besieged to "scale values" and substitute les 3 costly non-monetary compensation for more expensive monetary c ompensation. ‘2 On the other hand, there is data which would indicate that the emphasis is misplaced, 13 and that in the long run, status tends to equal financial reward and therefore the substitution is of limited value. 1‘ Sales Compensation as a Field of Study In order to hold as many variables constant as possible in the Study, it was decided to select a single occupational group. The occu- I)E"'1-:ic.>nal group selected was one with which the writer was familiar, namely, salesmen. ' - Regarding salesmen's compensation, Professor Harry R. Tosdal 1 a~d.e the following observation in 1953: The scientific literature upon salesmen's compensation No academic studies have come to light is relatively meager. beyond the limited treatment in one of the early bulletins of \ 111 12G. 1B. Strother and L. Johnson,- "Scaling Non-Monetary Induce- 3621113 To Employment, " Personnel Journal, XXXIX (Feb. 1961), 363- , 713Elliott Jaques, op. cit. 14‘D. C. Miller and Wm. H. Form, Industrial Sociology (New York Ii aTITIJer 81 Brothers, 1951), p. 370. the BU“ of PaVlT —"— Grocer\ _____‘ Ihe 0111 small 1' pared b New YO A searc 51551005 and X :1“ ‘~ ....s.ln, Tex; the Bureau of Business Research, Harvard University: Methods of Paying Salesmen and Operating Expenses in the Wholesale GrocerLBusiness in 1918, Bulletin No. 14, Cambridge, 1919. The only book devoted wholly to salesmen's compensation is the small volume entitled Tested Sales Compensation Plans, pre- pared by the staff of Printers' Ink, McGraw-Hill Book Company, New York, 1937. 15 A search of the Library of Congress card files yielded only two A. L. Seelye and Frank M. Bass, Sales Compensation additions: Grocery, Drug, Hardware. Methods and Policies of Wholesalers: (Austin, Texas: Bureau of Business Research, University of Texas, 1957). Series on Studies in Marketing, No. 2; and Marvin Hoffman and D. J. Luck, Salesmen's Fringe Benefits (East Lansing, Mich.: Bureau of Business and Economic Research, College of Business and Public Service, Michigan State University, 1959). MTA Paper No. 6. Tosdal's work, referred to above, is a broad study of outside Salesmen from many industries with many different selling jobs and attempts to present: ". . . facts, analyses, and conclusions with re Spect to the various problems in salesmen's compensation. "16 While Tosdal's study is definitive and a general reference source for the formulation of this study, this study attempts to hold the selling job In Ore nearly constant in order that compensation effectiveness might be 'assessed. Moses of the Study In addition to holding the occupational group constant, it was also de sirable to hold additional factors, such as market, product and \ 15Harry R. Tosdal, with the assistance of Waller Carson, Jr. , men's Compensation (Boston: Harvard Business School, Div. of Saw R esearch, 1953), Vol. 1, pp. 16-17. 16Ibid., p. 18. SCC‘LDEXUOD CCZDCRSEI ; te speciii ) n 5 c ( 17‘ occupational content, constant. 17 Thus, in the context of sales compensation of detail salesmen in the ethical pharmaceutical industry, the specific purposes of the study were to: l. 2. 5. Survey comprehensively the policies and practices regarding salesmen's compensation. Ascertain through interview and statistical methods the significant associations between policies, practices, and successful fulfillment of various sales, profit and personnel criteria. Assess the attitudes of sales managers regarding various criteria for designing compensation plans. Additionally, to analyze the attitudes which do seem to be scalable in light of significant associations previously derived. Provide significant information for managerial decision- making and the effective design and use of sales compen- sation plans in the ethical pharmaceutical industry. Indicate the nature and direction of other needed research. 3 Opic s Investigated With the occupational group, market and general product line held as constant as possible, certain topics bearing directly on the eValuation of compensation effectiveness were investigated: \ 1. In order to ascertain differences in tasks performed, com- plexity of tasks and latitude for discretion, the salesmen's job requirements were examined by obtaining a job descrip- tion as well as asking selected questions on salesmen's procedures. l"See discussion on pages 11-13. A {JTH' 2. To est of: fir: as 3. Wk ex; we 10 the ati We sa ar SC POI % F011 “than d 2. To further validate the topic investigated above, as well as estimate the effort expended by sales managers in the course of supervising and controlling salesmen's efforts, selected aspects of the sales manager's job were examined in each firm. Again, the procedure was to obtain job descriptions as well as by specific questioning. 3..While (1) and (2) above delineate the relevant areas for examination, an estimate of the most important aspects as ‘well as a measurement of the length of time for the salesman to exercise discretion in his job was obtained by examining the frequency and complexity of the formal performance evalu- ation. 4. To see if personal factors of the policy-making executives were adequate explanations of compensation, the attitudes of sales managers toward various selected criteria for designing and operating a compensation program were assessed by scalogram analysis. 5. » The actual compensation procedures and amounts paid were examined. 6.. Finally, various measures of marketing and sales force effectiveness were sought. These included such items as dollar sales, dollar profits, product concentration, turnover of the sales force, etc. This was a key point in the total . investigationand several items were not provided by an adequate number of sample respondents to allow a conclusive analysis of them. %at of the Study Following this introductory chapter,. Chapter II is devoted to an o Vex--311 description of the research design and procedures. ”In: “I Chapter I] represent :azcernec [3126111 c heresea tests and :i the m and an in effective aid £9.ch Chapter III is devoted to the presentation of selected survey findings representing the ethical pharmaceutical industry. ~Chapter' IV is concerned with the statistical analysis of data relevant to the primary concern of this dissertation. ‘ Chapter V comprises an evaluation of a the research as conducted, a conclusion in summary fashion of the tests and‘analyses contained in Chapter IV, an analytical interpretation of the implications for evaluating the effectiveness of compensation, andan indication of further research steps to be taken in understanding effective compensation program design. All relevant data, tabulations and calculations are to be found in the appropriate appendices. The Nature ?' Post gg N The c the importa {1) since 1h “-3 be mm 501‘ logical em‘ironrne: 13% the rel there will EtiVe mea is Very de 151skCOnfr PremiSCS Ships amo Met iiimy are n... . 3.;1‘ ASilca] \ ‘CL ico'n L1 [New YOri Hypothesi 2C0 CHAPTER II RESEARCH ' DESIGN The‘Nature of Variables For an Ex Post Aggregate Study The observational and experimental sciences have long stressed the importance of research design and the selection of variables.1 Basically, the question of design involves three elements of importance: (1) since the purpose of scientific inquiry is explanation, the hypotheses to be tested in a given research project must be in the form of premises forlogical conclusions; (2) the researcher must attempt to control. the environment in such a way that causal inferences may be drawn regard- ing the relationships of the variables in the hypotheses; and (3) since there will be alternative designs for logical conclusiveness and altern- ative means of controlling the environment, the decision of selection 1 8 very dependent upon the judgment of the researcher. The decisional ta. 8k confronting the researcher involves the logical relevance of Premises and conclusions, and the causal relevance of the relation- z 81711138 among premise variables. ‘Methods for determining causal inference with degrees of cer- ta-i11ty are the familiar statistical tests, often referred to as methods of S"-3.1:zistical inference. . Relevance for statistical inference requires that \ le. , - A. E. Maxwell, Analysing Qualitative Data (London: * Methuen o. ,' Ltd. , 1961), pp. 28-30; IrvingM-Copi,' Introduction To Logic 81' (3 ew York: ‘ The Macmillan Co. , 1953), Chap. 13,- "Science and ’(N H y'Ipothesis. " zCopi, op. cit., pp. 251, 372, 390-4. :rrelem‘n ism-mo: if: known This, regs siniaritie applying M .1 :9 ‘ ‘J‘JA‘Hung S Aca Simple pc :atural di SL‘ficient In a ”Enables methdS. a . .XQCt 165 r “ax‘l’ell, 4 F: 5' W. C: 46 Mac: 10 irrelevant premises or confounding variables be: (1) excluded from observation by design, or (2) effectively accounted for, by design, with known or estimatable degrees of certainty as to their effects. Thus, regarding sales compensation, the greater the number of similarities between the observational units, the greater precision in applying Mill's methods of estimating causal connections, and, in applying statistical tests. A caution is that this can be carried to the point where every- thing is identical in nature, and statistics cannot differentiate signifi- cantly by degree. However, due to the qualitative nature of the study undertaken, the goal was to find a maximum of similarities for a sample population where n > 20.3 From this it was expected that natural differences among the variables for testing should provide sufficient dispersion for significance. . In an ex post study, the independent variables and dependent variables cannot be ascertained with any degree of certainty with Mill's methods. A Only the inference that there is some causal connection can be made. Assigning independence and dependence can be made only by argument, and the probabilistic value of the premises of that argu- m ent can only be tested in another research design.4r A few remaining comments on the aggregation of data: (1) when aVerage values, such as mean income, are collected, very little is Iima-IIifest regarding the distribution from which they came; (2) testing for significant differences between means, for which the distributions are unknown, may obscure as many important associations as it reveals. \ e 3This is recommended as sound procedure as long as Fisher's 3"a-Czt tests are used or Yates corrections are applied. . See for example, Maxwell, 33. 313., p. 23. ’C ‘For an extremely well defined presentation of this position, see '1‘}; w. Churchman, TheorLOf Experimental Inference (New York: e Macmillan Co., 1948), Chaps..X, XI, and XII. RWY“! as neans, POSS analyses 0f C mlications The Sample Begin! select a san bench fim procedures, would tend 1 maximum n products, a trough inc itwas decil would prov: inter-i1 variables c Where thes A nu: house-10.11 Cleaning 51 '43 Electric steel, In th “<12"; 10 a ( 51035 10 p1 11 However, as the data were only available in the practical form of means, possible obscurities will be clearly indicated throughout the analyses of data so as not to mislead or provide a basis for unsound implications . The Sample Beginning with a focus on sales compensation, the desire was to select a sample from firms relying heavily on personal selling. 1 In such firms, the relative importance of compensation policies and procedures, as well as sales management policies and procedures, would tend to be at a maximum. Also, it seemed desirable to have a maximum number of similarities between firms regarding markets, This would improve precision products, and distribution methods. From the above, through increased control of extraneous variables. it was decided that an industry which relied heavily on personal selling This is because Would provide the best available sample population. the inter-industry variance due to market, product, and distribution variables can be expected to be greater than the intra-industry variance where these variables are more similar. A number of industries were prospects for this research effort: house-to-house selling industries such as encyclopedias and sundry Cleaning supplies; highly technical industrial product industries such ~as electrical switchgears and boilers; and other such as printing or steel. . In the house-to-house selling industries, markets and products Vary to a considerable degree, and there are many alternative occa- 81°ns topurchase. . For example, many types of items sold by the I"l-lller‘ Brush Company are also sold by variety stores, drug stores and supermarkets. Thus, company sales effectiveness may have little r ~ eJ—a-tionship to selling effectiveness of the sales force. On the other :azi, highly sales job fur sales engine :echnical quu L‘jab functic patients to While rimarket, I are relies qt An eth ll 11 mantfa {3} it promot li‘:'sicians a indusm-y, {ht The Consult: bepurchase lene mills: being dlI‘CCIl Si‘es lob-fur :6 PurPOSes 12 hand, highly technical industries have a considerable variation in the sales job function, with some companies using sales teams, others sales engineers, and still others using only engineers to answer technical questions at the initiative of the prospective customer. If job functions vary considerably, one would not expect compensation 5 payments to be accurately related to performance effectiveness. While a number of industries would meet the study criteria, the ethical pharmaceutical industry was the one selected. The ethical pharmaceutical industry fulfills the criteria of inter-firm similarities of market, product, distribution and sales job-function to a high degree, and relies quite heavily on personal selling. An ethical pharmaceutical company is identified by two criteria: (1) it manufactures pharmaceutical preparations for human use, and (2) it promotes the preparations only by providing information to physicians and pharmacists. Thus, in the ethical pharmaceutical industry, the primary purchase decision resides with the physician. The consumer receives a prescription which, in most cases, can only be purchased from a registered pharmacist, and, the ethical concept of the industry has precluded advertising, promotion, or information being directed to the consumer. Thus, the market, distribution, and 8a~1es job-functions are very similar within the industry as defined for the purposes of this study. Regarding the complete pharmaceutical preparations industry as designated by Standard Industrial Classification 2834, the United Staflies Bureau of Census states: \ - W sElliott Jaques, pp. 911., pp. 19-20. Note that the criticism v <)‘l-lld also apply to an inter-industry sample where the job-function a’l‘lance could be expected to be greater than intra-industry variance. Si ments 1 primarf presenc approxi fied in l {he COIT ltisto :c-r:panies. ments are 0% cents existin is establishrfi be an individi p-zpulation ex iko,S.l.C. ti consumers many are in1 sicmefinca iem and dis: hdbyDOWv( establishmen Charles Pfiz Accord 13 Since specialized equipment or relatively large invest- ments in capital are not prerequisites for many products primary to the industry, the industry is characterized by the presence of a relatively large number of small firms. In 1954, approximately 62 percent of the 1, 163 establishments classi- fied in this industry had fewer than 10 employees, and in 1958 the comparable percentage is 59 percent.6 It is to be noted that this refers to "establishments" and not companies. « In a number of cases numerous manufacturing establish- However, of the 1, 114 establish- 7 ments are owned by one corporation. ments existing in 1958, only 58 have 250 or more total employees. As establishments with fewer than 250 employees would probably not be an individual firm with a national detailing sales force, the sample population excluded all establishments with fewer than 250 employees. Also,-S.I. C. 2834 includes proprietary firms who advertise directly to consumers. For example, "One-a-day" brand vitamins. Finally, m‘any are in the field of manufacturing raw materials which are in turn S old to ethical pharmaceutical manufacturers who further process them and distribute them in final dosage form. Such firms are exempli- fi ed by Dow Chemical Company and E. I. DuPont, as well as several e Stablishments which are owned by American Cyanamid Company and Charles Pfizer & Company. -According to the 1961 Plant and Product Directory; The 500 est U. S. Industrial Companies,8 there are 12 establishments having 500 or more total employees which are either engaged primarily \ 6U. 5. Bureau of the Census, U. S..Census of Manufactures: 1 958, Vol.- 11, Industry Statistics, Part 1, Ma'Lor Groups 20 to 28. (Washington, D. C., U..S. Government Printing-Office, 1961), p. 28c-2. 71bid. , p. 28c-7. I 81961 Plant and Product Directory; The 500 Largest U. S. Wrial Comianies (New York: Market Research Department, c)l’t‘une, 1961). : supplying Pha grrprieiary pha ::r.iumer. If tl 151 or more tot ressible sample 5? percent of ti _ remaining 3 percent.” As the w: Tarious COI‘por Vere supplier s 335 selected b Eample was to lie compositio stratum Of 3 {-1 fire all in Clue accounting for ifmarket, W iiirms, ac“ firms, aCCOUn the Sample. Bl alppr “si . “inmate aggr 14 in supplying pharmaceutical chemicals or manufacturing and selling proprietary pharmaceuticals which are advertised directly to the consumer. - If these are subtracted from the 58 establishments having 250 or more total employees, this leaves 46 establishments as the total possible sample population. Of these 46, 12 account for approximately 59 percent of the total domestic ethical pharmaceutical market9 with the remaining 34 accounting for virtually all of the remaining 41 Percent.10 As the writer was not familiar as to which divisions of the various corporations were ethical pharmaceutical divisions and which Were suppliers or proprietary divisions, the actual sample of 33 firms Was selected by an industry authority. The population from which the SaInple was to be drawn was arbitrarily divided into three strata, and the composition of the sample selected was as follows: The first Stratum of 3 firms accounting for 20. 5% of the domestic ethical market were all included in the sample; from the second stratum of 9 firms, ac3< oo.o¢~ .m oo.~.~o .m doggone Hooflsoomfiumgm .mo «noohom do... Bonn amok/3 on “union affluence ommuo>< oo .98 .3“ 86mm .3 engages Hoofiaoomaumnm mo accouom no» Boa 30an: on «doing >uduocoe owdno>< oEooaH 5.3mm mo m $3253qu , Eugen omouo>< omduo>< H odd oEoocH Shh we Enochdmpofl “amnion.“ annomoumu cowodmcomgoo omouo>< owouo>< 0mm; “om; one omofi $5365 Hoofifloooaumam 9.3 no“ 325ng nowadmaomfioo ad§§< . .N. 3an 27 Product Conc entration Firms were queriedas to the percent of total sales generated by their two largest selling products. This was distinguished from their two largest selling dosage forms of product. Thus, one product could have many dosage forms and all dosage form sales were still counted as sales for the basic product. - In 1956, the industry mean of firms' sales derived from two products was 41.0% per firm with the median figure being 35. 0%. By 1961, the mean and median figures weree37.0% and 38. 0% respectively. Further inquiry on the subject of product concentration was under- taken from secondary sources and interviews with persons not wishing tobe quoted or identified. On the face of the 37. 0% average concen- tration figure, this would not seem an overly significant figure. However, when the question of control of product enters a significantly different picture emerges. Many firms purchase a product accounting fora significant proportion of their business from another firm which also does a significant proportion of its business in the same generic product with a different brand name. This is further complicated by'the fact that several United States firms will import under license, or manufacture under license, the same generic product with differing brand names. These facts indicate that detailing and the influencing of physicians to prescribe by brand name is of significant importance to firms. A correction factor to‘arrive at anvunbiased or absolute measure of detailing effectiveness is not possible, although some interesting analyses of concentration data will be found in. Chapter'IV as well as in - Appendix VIII. .' Sales and Profits Sales figures and profit figures were the most difficult to obtain, caused the greatest alarmon the part of the respondents, and are the 28 most subject to considerable bias in collection. The major problem is one of distinguishing domestic sales and profits from export sales and profits. To this problem no satisfactory solution, other than going tosecondary sources, was available. -The most reliable industry sales figures are shown in Table 8; industry profits in Table 9. -Additional secondary sources of sales and profits are to be found in Appendix VII. ‘q. —._'_-— ‘g . C C N. a “win HIV. 3 «U, NJ a -fiarhsv— “u "0‘ l-hrh I If! n.‘ l.‘ I 1.! u 29 . .mmg pom em: #3 muouaooflfimz mo mdmcoO .m .3 59¢ :oxmu one om: >umofiuooo> H3 mcofionmmoha wcfipgouno confide. auoafifiuuuomxo one anemone: womanhood“ MOM . .UGH .mcofimofiafinm 0503632 Guano: .3. @393an ohm moufiwwhp .msoflop nonmm mLouduommdcmfi one moHSmfl :40 .moudma oouoewpmmnn .e .a .82; 22: 6:330:th 230602 Gnooog "MHOwocch .mfloamocfigv oBSO $333.32 $0632 "oouoowm 8.08 .23 .oma .Na 8.08 .2: .23 .3” oo .oow .20 £3 .Zeaorafiseaoo oaseefioo .. and dog: HOW m Ho ofido oognmgm Hmuo H. 858.3963 858 .Nwmeem 8.0863 .aem GHQ $233805 8.88:0 .mem .2 8.08 .mmm .02.; 8.255% .ema modem Heoafim __ ofimofioo H.308 oo .25 a: .wwm oo .25 {an .mem oo .80 .mam .2: 33:38 Sausage 8535? .36 868 .omm .maN 868 .2}. .mmm modem 3538235 one Hmaamom 8 53.8w .0? a 8.80 .33 .35 a 8 .25 .sma .emm a oeoaee 83.223on noses wmoa . emea «32 one 32 .emS eoesmam modem aeoraooefiaoam osmofioo .w ease 30 Table 9. .Profits After Taxes, 1949—1961a w u —'_ 3 Percent Profit Per Dollar of Sales 'Year Anderson Reportb FTC-SECC 1949 13.8% 1950 13.8 1951 10.1 1952 9.3 1953 9.5 1954 10.3 1955 12.5 1956 13.8 1957 14.4 10.4% 1958 13.5 10.2 1959 10.3 1960 9.9 1961 9.8 Average 12.5% 10.1% . aSource: Prescription Drug Industry Fact Book (Washington, D. C.: PharmaceuticalManufacturers Association, 1962), pp. 1&3. bThe Arthur Anderson 81 Co. Report was prepared for PMA, covering 50 reporting PMA member firms (1959). CThe FTC-SEC publishes quarterly a financial summary of the operations of about 80 companies representative of the ethical and proprietary drug manufacturing business. Data was not published prior to 1957. Scalogram .——&-_. 21 Sales M x Thre '1) i: must :cmanv a iu'EStiOns ‘z-El'e anal3 current-10. the analys Attir \ filed and f than 1'ecoi'z inability ,- “Certabie The first c is the 3108‘ CafegOry, ; 911011111 of E iced Salem MOI-many CHAPTER IV ANALYSIS OF SURVEY DATA Scalogram Analysis of the Attitudes of Sales Managers Three often-invoked criteria of a sales compensation plan are: (1) it must provide incentive to the man; (2) it must be fair to the company and the salesman; and (3) it must provide income security to the man. These are conscientiously referred to in virtually every sales management class, and yet, very little is known regarding sales managers' attitudes toward them. In order to ascertain the existence of crystallized attitudes regarding these three areas, twenty-five questions were constructed to administer to the sample. The responses were analyzed by Guttman scaling techniques, item analysis, and rank correlation. Appendix IX presents the data and calculations used in the analys e s . Attitudes Toward Security. --The only area which was crystal- lized and fairly consistent was that of security. The sample is less than recommended by Guttman. However, the coefficient of repro- ducibility is . 902 and the coefficient of scalability is . 63. Both are acceptable. The scale breaks into three major attitude categories. The first category, which includes the six largest firms in the industry, is the most conservative. A total of eleven firms are included in this category, and subscribe to the attitude that: (1) there is a minimum amount of security needed in a compensation plan to attract and hold good salesmen; (2) the experienced and competent salesman thinks of opportunity rather than security of income; and (3) the important factor 31 Li er. 541;: (In (In a. .l Eb. 32 is not security 'of income, but rather the salesman's self-confidence in his sales ability. The second category subscribed to the foregoing statements plus the further assertions that: (4) salesmen as a group are generally less concerned with security of income than are other employee groups; (5) the experienced and competent salesman is not concerned regarding week-to-week or month-to—month fluctuations in earnings, but concen- trates on total annual earnings; and (6) too much security of income will cause poor salesmanship. Twelve respondents are included in this category. The third category is most liberal regarding security. Beside affirming the foregoing statements they further agree that: (7) their company sales compensation plan is too concerned with security; and (8) salesmen in the ethical pharmaceutical field today have too much income security. The latter would seem to be those that subscribe to the theory that the best salesman is a hungry one. Interestingly enough, this last group of five respondents includes three of the fastest growing, large firms in the industry. Item analysis yielded the following two items as being signifi- cantly related to over-all score on the security inventory; (1) if the respondent agrees that the experienced and competent salesman is not concerned with week-to-week and month-to-month fluctuations in earnings, but concentrates on total annual earnings, his score is high;1 (2) similarly if the respondent agrees that salesmen as a group are less concerned with security of income than other employee groups, his score is also high.7‘ lThe chi-square value of the association of this item with a score of five or more out of a possible eight is 5. 08. This is significant at the . 05 level. .See Appendix IX for calculations. ’zThe chi-square value of the association of this item with a score of five or more out of a possible eight is 10.82. This is significant at the . 01. level. .See Appendix IX for calculations. 33 Attitudes Toward Incentives. --Regarding the question of an atti- tude toward incentives, the scale was non-linear which could validly imply that either: (a) the attitudes regarding incentives are more com- plex than the questions in the inventory; or (b) sales managers are sharply divided on what incentives are "'right" and proper to use in the ethical pharmaceutical industry. Similarly, the coefficient of repro- ducibility was high, . 886, while the coefficient of scalability, .429, was below acceptable levels. The latter is due to the poor scale configuration and lends little value in implying whether alternative (a) or (b), above, is the correct one. The relatively high coefficient of reproducibility lends strength to alternative (b), although, in fact, it is quite probable that both alternatives (a) and (b) are involved. Regarding the scale categories of sales managers' attitudes toward incentives, only two are evident. The first included sixteen of the respondents and was characterized by the agreement that: (1) a good sales compensation plan always provides an incentive to the salesman to earn more money; (2) an automobile is an extremely important incentive to salesmen; (3) a sales compensation plan should not have a maximum earnings limitation; the salesman should be able to earn as much as he is able, even if it is more than the manager's income; and (4) money is probably the strongest incentive affecting sale smen' 8 performance. The second category, although subject to more errors and non- linearities than the former, includes the remaining twelve firms and is characterized by agreement that: (5) one of the major problems in using a commission plan is that it tends to cause salesmen to "oversell" the customers; (6) sales contests tend to undermine the professional attitude toward selling; (7) there is probably too much emphasis on incentives today; either a man is an interested and effective salesman or he isn't, and incentives won't change his behavior very much. 1:4 associat rat a coeffici five majo Ithhgh The agree wit} agreed, f pattern CO this group able CQmp‘ Eiders as 1 The : agreed Wit} Cream-able and mm YEa Etonege’ ”Stilts; and reE‘irdless I A thir t~ . he the allow. 1 101‘; be 34 "Items (5) and (6'), above were highly significant, being closely associated with high scores on the incentive inventory.3 Attitudes Toward Fairness. --The third area tested was that of sales manager's attitudes toward fairness. This area was theleast crystallized of all, yielding a coefficient of reproducibility of . 80 and a coefficient of scalability of .44. The respondents separated into five major scale categories and two items were significantly associated with high scores on the inventory. The first category consisted of six respondents who refused to agree with any question on which a majority of the remaining firms agreed. They all agreed with at least one item even though not in a pattern consistent with the other firms. The grestest agreement by this group was that what a manager considers as being a fair and equit- able compensation plan is often different from what a salesman con- siders as fair and equitable. The second category included ten respondents who generally agreed with the following assertions: (l) in the final analysis, it is measurable sales results that should determine a man's income, and not years of service, amount of responsibility, degrees received in college, or any other basis which is not directly related to sales results; and (2) men of equal productivity should receive equal pay . regardless of time with the company. ~ A third category consisted of three respondents" who, in addition to agreeing with the above, further agreed that: (3) a salesman should not be allowed to earn an income which is equal to or greater than his superior, because the salesman does not have managerial 3Using Fisher's exact tests, the level of significance of the associ- ationof item (5) with a score of five or more out of a possible ten. is at the .0092level. Similarly, the level of significance of the association of item (6) with a score of five or more is . 057. . See Appendix IX for c alculations . 35 responsibilities to perform; and (4) a guaranteed minimum income is fair to the salesman, anda guaranteed maximum [income] is fair to the company.‘ A fourth category of three respondents, while agreeing with (1) through (4) above, also agreed that: (5) what a manager considers as being a fair and equitable compensation plan is often different from what a salesman considers as fair and equitable. The fifth category of six respondents further agreed that: (6) a sales compensation plan should provide additional income for additional investments of the salesmen's leisure time in such activities as night school, extra training sessions, special duties, etc. Item. analysis showed that item (4) was closely associated with high scores on the fairness inventory.5 Attitudes Toward Fairness, Security and Incentives. --If the attitudes toward fairness, security, and incentives are opposed, a negative rank correlation could be expected. Similarly, if they were additive, a positive correlation could be expected. Correlation between security and incentive rank was -. 308, but was not significant at the . 10 level with a "t" value of l. 655. Similarly, the correlation between incentive and fairness ranks was -.145 and not significant. Correlation between fairness and security rank was +. 208, and, again, of no sig- nificance. . Such relationships were to be expected in view of the relatively low coefficients of scalability for the fairness and incentive scales. ‘This involves the problem of a "run-away" product on which a commission is paid. ‘5The chi-square value of the association of this item with-a score of three or'more out of a possible seven is 5. 19 and significant at the . 05 level. See Appendix‘IX for calculations. Whei associated ’1 over-a expected it incentives. more out c all-awed to superior, ' hilities to 3 more out 0 income is 3 is fair to t] and the 1m} mediates b SECuI-ity an Appa‘ fgrmulated sharply div 31116 two C11 zanagemen afattitudes 36 When item analysis was employed, two items were significantly associated with high scores on the over-all inventory, even though the over-all inventory was non-linear and insignificant as was to be expected from the inadequate scale configurations for fairness and incentives. The first was that respondents with a score of eleven or more out of a possible eighteen agreed that a salesman should not be allowed to earn an income which is equal to or greater than his superior, because the salesman does not have managerial responsi- bilities to perform.6 The second was that with a score of eleven or more out of a possible eighteen agreed that a guaranteed minimum income is fair to the salesman, and a guaranteed maximum [income] is fair to the company.7 Both relate to a sense of equity or fairness and the implication is that the sales manager's sense of fairness mediates between the somewhat opposed forces of the concern for security and the incentive to perform. Apparently, a basic attitude and opinion on security is well formulated among sales managers. , Furthermore, they are fairly sharply divided into two categories on the question of incentives. - If the two differing categories stem from differing philosophies of management, this would explain the errors and lack of crystallization of attitudes toward fairness. - However, one does not have data upon which to base such a conclusion. 6The chi-square value of the association of this item with high scores by respondents is 4.42 and is significant at the .05 level. 7The chi-square value of the association of this item with high scores by respondents is 7. 27 and is significant at the .01 level. See Appendix IX for calculations. 37 -Analysis of Potential Associations Between Managerial Control, Job Requirements, . Turnover, andlncome Five elements of managerial supervision were assessed and dichotomized. The first was the control of the detailman's routing. If the company indicated that they attempted to control the detailman's routing in the territory by means other than general supervision, they were rated high on this element. - Next was the freedom for the detail- man to develop his own detail. If, in the job description, the company referred to a memorized detail or a pre-planned detail, the company was given a high rating on this element. Third, if the job description referred specifically to duties in the nature of trade relations (e.g. conventions, wholesaler's association meetings, etc.), the company was rated high on this element. Fourth, if the company gave the detailman an expense budget or fixed limits per day for food and lodg- ing, it was rated as high. Finally, an over-all estimate of the detail- man's freedom on the job was determined on the basis of the number and complexity of evaluations for determining compensation. This was also rated high if there were many items of evaluation or a total performance review. From these five elements, the companies having three ormore high ratings were classified as having high over-all managerial control over thedetailmen. Similarly, if theyhad-fewer than three high elements, they were rated "low. " Next, firms were cross-classified as to whether they were above, or not above, the medianfor companies in the sample regarding: (a) turnover rate, and (b) average compensation payment. The resulting contingency tables, presenting the incidence of (a) and (b) in. firms categorized as having high or low managerial control of detailmen’s activities, are shown as Tables 10 and 11. 38 Table 10. Incidence of Turnovernin-Firms Categorized‘as'Having‘High or'Low Managerial Control of Detailmen's Activities Low‘Managerial — High Managerial - .- Control - Control Turnover not above a median rate (13. 3%) 10 4 Turnover above median rate 6 7 Total 16 ll 21Only 27 respondents provided turnover data. Chi-square value: .629 (not significant) Table 11. Incidence of High and Low Compensation-Level In Firms Categorized as Having High or Low Managerial Control of Detailmen's Activities Low Managerial - High Managerial . Control Control Firm's average compensation payment at orbelow~median 9 5 Firm's average compensation payment above industry median 8 6 '.'.'.'-"Y -'-- - - - .‘--"--‘- 'v-‘-‘-‘-'.‘-‘--’m-‘-'"‘-"-'—‘--'-'-"‘mm'- 'h‘ Total 17 l l Chi- square value: . 00‘ (not significant) 39 Firms which had high or- low managerial control ratings were then classified again-as to whether-theyhad high or low time-discretion requirements for the detailman's job. This was accomplished by examining the frequency of required reports submitted by- the detailrnen andthe frequency of the formal performance evaluation. If detailmen were required to submit daily reports and were evaluated quarterly or bi-monthly, the time-discretion requirement was judged to be'short or low as compared to the firm where detailmen submitted reports weekly and were evaluated annually. The resulting contingency table is shown as Table 12. Table 12. Incidence of High-and Low Time-Discretion Requirements ln‘Firms Categorized as Having High-or Low Managerial ~ Control of Detailmen's Activities Low Time- High Time- Discretion Discretion Low managerial control 10 7 High-managerial control 5 6 Total 15 13 _ Chi- square value: .141 (not significant) Two analyses which provided significant implications were: (1) high andilow turnover figures cross-categorized with high and'low time-discretion requirements of the job; and (2) high-and low average compensationlevel cross-categorized with high and‘low time- discre-tion requirements. ~ These *are‘shownas Tables 13 and 14 respectively. 40 Table 13. .Incidence of High-and Low Time-DiscretionRequirements ’With High and Low Turnover Figures Low Time- High Time- Discretion Discretion Turnover figure: of company at or below median for industry 5 9 Turnover figure of company above median for industry 10 3 Total 15 12 Chi-square value: 2. 675 (not significant at the . 05 level) Table 14. Incidence of High and Low Time-Discretion Requirements *With High and Low Average Compensation‘Payments Low Time- High Time- Discretion Discretion Firm's average detailing payment at or below industry median 10 4 Firm-'3 average detailing payment above industry median 5 9 Total 15 13 Chi- square value: 6. 74 (significant at the . 01, level) VVh were onl figures I EEiott Ja reguirerr education :scretio by an abi far lower IDet majoring level of ti t0 be fair Communic hmnogene mnOVer ; Shauld re‘ shows tha 201 Statist it do“ im jobs With 1 {retiOn Ca considers Cbmpensat than the c1 41 -While the figures for Table 13 were not significant, as there were only twenty-seven respondents who provided turnover data, the figures for Table 14 were very significant. Both‘are consistent with ‘Elliott Jaques' assertion that compensation level and time-discretion requirements of the job are related. A person's intelligence and education should correlate fairly well with his ability to exercise discretion over periods of time, higher education being characterized by an ability to plan for relatively long time periods and vice versa for lower intelligence and/or education. Detailmen, being predominantly drawn from college graduates majoring in the life sciences, can be expected to have a fairly high level of time-discretion ability. Furthermore, one would expect them to be fairly homogeneous with respect to this ability as they must communicate effectively with physicians. Assuming they comprise a homogeneous group, chi-square analysis of the association between turnover and time-discretion requirements of the detailman's job should reveal a significant negative association. Inspection of Table 13 shows that they are negatively associated although the association is not statistically significant. While the association is not conclusive, it does imply the validity of Jaques' assertion that individuals seek jobs with time-discretion requirements which equal their time-dis- cretion capacities. The implication is also strengthened when one considers that the chi-square value of the association of average compensation level and turnover (see Table 15) is considerably: less than the chi-square value of the association of time-discretion require- ments and turnover. Data on managerial control and time-discretion requirements were primarily of a qualitative nature and could not be arrayed in a continuous manner. On the other hand, data onturnover and average compensation‘level were specific figures and could be continuously 42 arrayed from highest to lowest in the industry. Whereas the chi-square analysis of average compensation level and turnover was not significant, rank correlation indicated that a significant negative relationship existed (rho = -. 542, significant at the .01 level). Thus, while a significant categorical association is absent from the data a significant positional as sociation is evident. Table 15. Incidence of High and Low Turnover In Firms Categorized as Having a High or Low Average Compensation‘Level H Firm's Average Firm's Average Compensation Compensation Payment at or Below Payment Above the the Industry Median Industry Median Turnover rate not above median rate (13. 3%)a 6 ' 8 Turnover above median rate 8 ‘ 5 Total 14 13 aOnly 27 respondents provided turnover data. Chi-square value: . 360 (not significant) Factorial Analyses Dichotomized elements (managerial control, average compensation level, time-discretion requirements, product concentration, and attitude scores) were combined in several ways to arrive at three, 2 x 2 x 2 contingency tables. Due to the "small sample size, the tables were limited to three elements yielding eight combinations. These tables are shown as Tables l6, l7, and 18 respectively. 43 .hm momma vow .cofloom wcfipooonm was. 5 pmnfiuomop mm Goflmudfigoxudp MOM Emma. gamma .oudwfl 35 you Geog mEoEdSop 05 popoooxmu ERG 05. mo “Cesium smegma/m 93 .5503? mm? >Homoumo nwE on. mgcwwmmm 90m 3w..mmd N a o o 2520 33m swam 52$ afifiomosm imam 36st 363 Ewan: 363m 3?an A303,... $235388 35on Ewart. 36:... 3350 36:2 20.330 Hmiommcmfi Emit: A337: 2 floured COSMmGoQEoU 5N mguwh mo .02 E 25E mafimm do $580 3:8 swam firs Hoe/01H GOSMmGoQEoU pad qofimficooaou uoaponnm .Jouucoo Hmwhommnmg mo 098.395 4: oaflmfi A: 0308 E mm. coflmsflEogosowp H3 300a. 050m~ .2. pad on do .mc .hm .om p0h0n§G 93300.96 02% mo 0uoE no 00.23 fig? p00umm muc0pnomm0h :02? GM 0003» 0am. 00.800 swam» o _ m N m m o o H «2830389800 Aw“: fig? Gofiuomounm 44 o 355 m Emacs 32:. Emir. 3.2: Ema... 36: m n 3.3280 ~0~n0m0¢02 335m 36: w Ewan: 36: w N sofimnua0 23 0 «3500mm Ems: m a 36:2 2 0.80m 0pdfifi< mm 053nm mo .02 III) G0E3000Q .HoH ”H00: 05. 9.69% ~0>01H ”8300239500 0m090>< am no“? mafih s: 3.32.80 H030mmdmz pad £030.3G00G00 podponnm .0uoom 0p3fi3< mo 0200.305 7 .: 030M. 45 .am 0wmm 00m £83000 mcwp000na 05 GM 00 :oflmflggoguwp MOM 3003 023wn . x: 030R. E 00 200303839330 you 3003 050m» .5 030B GM 00 nofimuflgogaowp .Ho« 30.00. 050m". N 23300239580 :33 5;? cowpuomoum EmEVN 363 33:: A33? 3933 32E 2mg... 36¢ e anoh. >0, p0§so0m 233000037053. Emu: m 36: m 3?»: a. 36: m N “830030 95 0 0.0.35 Ham $6: 2 2 0.30m 09339.4». Ill) mm maflh mo .02 :0EHM000Q HOW £002 05 0>on< H0>0AcoSMmc0mEoU 0m0n0>< c0 233$ 08.3mm cw nob. mo mud0aofldv0m Gofi0numfln70§8 pom cowumuuc00GoU 905ponnm .0Houw 0p33u< mo 00:0205 . .mH 0308 46 Each of these tables was treated by the Dyke andiPatterson method outlined in A. E. Maxwell's book‘.3 Matrices were constructed, iterated, and then inverted by an IBM 1620 computer in the Massachusetts Institute of Technology computer laboratory. The weighted main effects, products of post-multiplying main effects by the inverse matrices, standard errors, and the significance of each main effect for each of the contingency tables (Tables l6, l7, and 18) are shown as Tables 19, 20, and 21 respectively. From Table 19, it is evident that in the presence of managerial control and product concentration, compensation level is negatively associated to some extent with sales growth. However, the association is not significant at the .10 level. While this is a strange inference and one might be tempted to say that such a result is due to chance, it nevertheless is consistent with other findings. . First, compensation level and number of detailmen are positively correlated. Second, product concentration and sales growth are significantly related, high“ product concentration yielding high sales growth and low concentration yielding low sales growth. Finally, there is a tendency for product concentration to decline with increasing firm size. Thus,.low compen- sation levels associated with high product concentration and small firms would be expected to account for a considerable number of occurrences of high sales growth. .Similarly, managerial control in the presence of product concen- tration and compensation level is not significant in explaining sales growth. However, when managerial control is viewed in relation to the fact that product concentration in the presence of compensation level and managerial control is not a significant explanation of sales growth, -3A. E. Maxwell, op. cit. ,. Chap.rVI. .For the specific procedures used, see Appendix X. 47 managerial control becomes more important. This is because in the absence of managerial control and compensation level, product concentration is a very significant explanation of sales growth (chi- square = 6. 97; P < . 01). The implication is that managerial control and compensation level would be significant in explaining why com- panies with low product concentration show higher than expected sales growth, and companies with high product concentration show lower than expected sales growth. However, such an hypothesis cannot be tested by the data collected in this survey. Table 19. Significance of Association of Managerial Control, Product ‘Concentration and Compensation Level With the Sales Growth of Sample Firms =‘# r m Weighted Main Std Significant Effect Effect Error C. R. Level m' -4.474 -l.394 .97 -l.44 N.S. Product . Concentration l. 814 . 087 . 28 . 31 N.S. Managerial Control .712 .035 .28 .13 N.S. Compensation 3.112 -1.167 .98 -l.19 N.S. A test of the model, as suggested by Maxwell, shows that it is not a significant explanation of the data, and that the interactions would be likely to more fully explain the data. This supports the reasoning above; however, the sample size is not sufficient to proceed with an 8x 8 matrix. .A further inference is to be had upon inspection of Tables 20 and 21. In Table 20, the only element approaching a safe level of signifi- cance is that of being low on managerial control, product concentration, 48 Table 20. . Significance of Association of Managerial Control, Product Concentration and Attitude Score With Compensation Level of Sample Firms Weighted Main Std Significant Effect Effect Error C. R. Level m' -5.430 -1.798 .71 -2.53 P<.02 Managerial Control 1.868 - .560 .47 -1. 19 N.S. Product Concentration .756 - .510 .41 -1.24 N.S. Attitude score -l.794 .739 .52 1.42 N.S. Table 21. Significance of Association of Attitude Score, Product Concentration and Time-Discretion Requirements of Job With Compensation Level of Sample Firms m Weighted Main Std Significant - Effect - Effect - Error C. R. . Level m' 1.349 - .0016 .40 - .000 N.S. Attitude Score 3.893 1.201 .51 2.37 P < .05 Product . Concentration 3.811 1.112 .48 2.32 P < .05 Time- Discretion - .027 1. 300 .62 2.10 P < .05 49 and attitude score (m'). This is significantly related to low compen- sationilevels. .Similarly, high attitude scores are indicative of a fairly well crystallized criteria of security, incentive, and fairness. The positive relationship, (1.42) while not significant at the . 10 level, implies that attitude scores are associated, positively, with the company's compensation level of detailmen. .A test of the model again indicates that interactions of manage- ment and product concentration with attitude score might be significant in a further explanation of compensation levels. »Finally, Table 21 indicates that time discretion, product concen- tration, . and attitude score, in the presence of each other, are all related to the compensation level of the firm. Furthermore, the significance of product concentration, in the presence of attitude score and time-discretion supports the problem voiced by several managers regarding "run-away" products which add to detailmen's commissions. It also is relevant to the problem of a lack of crystallization of attitudes among managers regarding incentives and fairness. A test of the model indicates that the model is not a complete explanation of the data and that interaction effects would probably be significant. Product concentration, interacting with attitude score, would likely be the most significant and supports the unresolved attitudes of sales managers, in the aggregate, toward the criterion of fairness. Following this, product concentration, interacting with time-discretion, would likely be of significance in explaining compensation levels. . Relation of Findiggo General Conclusions of Other Studies Sixteen years ago, a National Industrial Conference Board Report stated: ' "There is a contention, in fact, that sales management has been slow to adopt personnel practices and policies which have won wide 50 acceptance in the field of industrial relations. "‘ Examination of the pharmaceutical industry revealedthat presently only twenty out of twenty-eight firms had any semblance of a job description, with only one being a full description as specified by Maynard and Davis. Furthermore, only nine of twenty-eight firms placed major emphasis on total job performance when evaluating detailmen's performance, while only two of the nine held it to be the most important evaluation factor. This would indicate that even at present, the pharmaceutical industry could make greater use of scientific personnel policies and practices. .Similarly, Tosdal and Carson in 1952 stated: As the analysis of business experience shows, it is both in the failure to understand the nature of the task to be per- formed and in the executive's inability to evaluate performance accurately that much controversy in connection with salesmen's compensation arises. Only a limited portion of salesmen's performance lends itself to accurate measurement; for instance, the clearly understandable figures of sales volume and the some— what more difficult items of profits, margins, and sales costs.5 Sales managers in the pharmaceutical industry today look at the problem in almost precisely this fashion. None of the companies gave salesmen information on margins, profits, or sales costs for their territories. Also, in evaluating salesmen's performance for determining compensation, only nine firms used a total performance evaluation, and of these nine, only three could be categorized as using behavioral science measurement methods. 4Elmer W. Earl, Jr. ,. Salesmen's CompensationPlans. IN.I. C. B. Studies in Personnel Policy, No. 81. ~ (New York: (National Industrial Conference Board, Inc., 1947), p. 7. '5Tosda1 and Carson, op. cit., pp. 302-303. 51 Another point made by Tosdal and Carson was that: ." n general, commission plans of compensation were accompanied byhigher turnover than salary; salary and incentive plans fell between. "6 The data in this study fit the pattern; however, tests of association were not significant. Similarly, the above authors found:' "As might be expected, high average earnings were accompanied generally by relatively low turn- over, whereas low earnings were most frequentlLaccompanied by higher turnover. "7 Pharmaceutical data fit this configuration with a rank correlation of -. 542 and a "t" value of 3. 23. This was significant with a chance probability of occurring of less than . 01. In a 1955 study, R. J. Leavesy found a higher median income for detailmen employed by companies having more than 100 men.8 In an attempt to see if this was a general and continuous phenomenon, a rank correlation between average income and number of detailmen employed was calculated. The results were significant, with rho = .468 and "t" = 2.65; chance probability is . 02 or less. - Norman Hawkins, E. J. Hall and N. S. Birkett found a median income for pharmaceutical detailmen in 1958 of $7, 606.00. They hypothesized that this may have been biased on the high side due to their sample.9 This compares favorably with a mean estimated income of $8, 115.00 for 1961, and a median of $8, 190.00. They concluded that 61bid., p. 403. 71bid., p. 407. 8R. J. Leavesy, "Recruiting Detailmen, " Medical Marketing, Vol- V (January, 1956),. pp. 1-5. 9N. Hawkins, E- J. Hall and N. S..Birkett,' "The Detailman’s Side of the Controversy,- " The Pennsflvania Medical Journal, Vol. LXIII (June, 1960), pp. 865-869. ' 52 the figure of $7, 606. 00 was "middle-class, " however, in 1958 this placed detailmen in the upper 26. 5% of income earners,10 while $3.190. 00 in 1961, placed them in the upper 28.0%.n IOU- S.-Dept. of Commerce, Office of Business Economics, Survey of Current Business, Vol. XLI,- No. 5 (May, 1961), p. 13. '"U. 8.. Dept. of Commerce, Office of Business‘Economics, Survey of Current Business, Vol.. LXII, -No. 4 (April, 1962), p. 10. CHAPTER V . SUMMARY AND CONCLUSIONS An Appraisal of the Research Probably the most appropriate item for beginning a criticism of any research is the basis upon which it was formulated. The basic question involved here is the importance of compensation as a managerial tool for control of marketing activity by the sales force. While the data collected indicates that compensation $3.33 be important to marketing effectiveness, it is not conclusive and final. This is due to a number of identifiable problems. The first is a lack of reliable criteria. While most firms c00perated on procedural questions, ,many refused to c00perate on questions which would allow evaluation of corporate effectiveness. For example, almost one-third of the sample refused to give any profit information; another one-third refused to give absolute profit figures. Similarly many firms did not have data other than sales data on which to evaluate corporate market- ing effectiveness. Furthermore, many firms even refused to give dollar sales figures. - Of the important criteria questions the only, salvageable ones were sales increase figures, sales force turnover figures, figures on the number of products sold, and product concen- tration figures. The company's rate of sales increase, while a good quantitative criterion, .is lacking as a qualitative criterion. Had-actual sales dollars been available, sales per man, sales per channel, dollars of product concentration, and other important criteria could have been calculated. 53 54 Similar problems exist with the company's rate of profit increase. Furthermore, industry cooperation was not sufficient to allow the use of any profit criteria in the research. A repeat of this research would lead one to focus more carefully on sales and profits by attempting to discriminate more effectively between competitive sales and profits, and olig0polistic sales and profits. This would require a longer period ' of survey time and much greater cooperation, which would probably not be forthcoming from the industry. However, as previously men- tioned, the hesitancy is understandable in view of the recent investi- gations and publicity. Thus, the basis upon which the research was founded, was and is sound--the effectiveness was limited, as is most behavioral research, to the amount of cooperation available. -Regarding the research design, this will be treated in the separate parts: (1) sample; (2) questionnaire; and (3) interview procedure. The sample was well-drawn, with ratio estimates very closely approximating known industry data such as total sales and sales growth. If further aggregate measures for weighting sample strata had been available, the sample would have been considerably more valuable. » For example, aggregate channel sales, correctly classified and then used to weight sample strata, would have yielded an ethical pharmaceutical distribution profile. This would have been of value to participating firms. The conclusion to be drawn regarding sample selection is that comparison with known figures shows it to be an accurate, stratified sample which would be further strengthened by additional means of weighting. (The questionnaire posed more problems and theoretical issues. First, .it was longer than desired, complicated, and subject to semantical errorwhen used as a mail device. This was recognized at the time of design, with the result that interview collection was obtained for twenty of the firms in the sample. During each interview the questionnaire was used as a structuring device. 55 Second, the questionnaire was both too detailed and not detailed enough. It was too detailed in the sense that subtle differences between questions were often overlooked by respondents with the obvious result of confounding replies and increasing the probable response bias. (On the other hand, the questionnaire was not detailed enough to accommodate subtle distinctions in the respondent's replies to a given question. This was corrected to a considerable extent by the use of interview procedure. Third, the questionnaire was worded precisely and effectively for careful thought, but to the limited attention span available to an executive it sometimes appeared too carefully drawn to be trusted. . Several respondents stated out loud: "Now I'd better be careful or I'll appear inconsistent. "‘ Similarly, many wished to know the motives for certain questions, especially cross-reference, corporate effectiveness criterion, and validating questions.1 Regarding the industry c00peration, sophistication of firms' accounting, operational importance of policies, and the effectiveness of memory, the questionnaire was very adequate in terms of the range and complexity of questions. Finally, regarding its appearance and format, the questionnaire was very effective. Following the outline of questionnaire construction given by Boyd and Westfall, 7' and considering the nature of the research, the questionnaire was operationally very satisfactory. Similarly, the pretest and analysis contributed substantially to the reorganization of the questionnaire and data collection procedure. 1It should be remembered that these executives had been involved with recent FTC questionnaires and Senate Subcommittee examinations which made them very cautious in answering a questionnaire. zHarper w. Boyd, Jr. ,. and Ralph Westfall,) Marketing Research (Homewood, . 111.: Richard D.- Irwin, Inc. , 1956),- Chapter 7,1 "Data Collection Forms. " 56 Interview procedure is the most nebulous to appraise. While one cancognitively know and understand personality traits, what to observe in a specific reaction, the appropriateness of deliberately biasing a question, as well as understanding the procedure of non- directive probing, the behavioral effectiveness of an interviewer only comes with experience. .Similarly, the objective and integrated appraisal of an interviewer can only be performed by an experienced and effective interviewer aware of cultural differences, role differ- ences, and attitude sets. Consequently, appraising one's own inter- viewing effectiveness is similar to shaking hands with one's-self—- it depends on an interpretation of a handshake and at best is backward to inter-personal procedures. , However, at the cognitive level, this researcher felt quite adequate to the task. At the behavioral level, self-perceived effectiveness increased throughout the series of interviews, thus implying that behavioral flexibility and effectiveness suffered relatively in the first half of the research due to a lack of experience. The co-interrogator's cultural background, understand- ing of the executive role, and attitude set (being himself a seasoned, policy-level executive) qualified him as a more effective interviewer throughout the research. Thus, interviews and elicited responses for the complete survey can best be judged as exceeding the normal effectiveness of business research interviews. In conclusion, the basis of research formulation was, and is, sound; the sample was accurate and representative, and could be expected to be valuable as a paired sample for further observations at a later date; the questionnaire was operationally satisfactory as an interview structuring and data gathering device; and the interviewing effectiveness was probably above that of similar research problems. 57 A Summary of Main Findigs The ethical pharmaceutical industry can be characterized as highly promotion-oriented, having one detaihnan for every fifteen physicians in the United States. The firms predominantly encourage their men via incentive compensation; the most frequently used plan is salary plus commission, and the next most frequently used plan is salary plus bonus. The ethical pharmaceutical detailman is well-paid; in 1961, the top paid ten percent earned approximately $10, 810. 00 per annum, the lowest paid ten percent earned $6, 270. 00, and the over-all average of detail- men's income was $8, 115. 00. In addition, he is well provided for in terms of fringe benefits, with all firms offering pension plans, comprehensive medical and hospital insurance, and life insurance. In only two cases did the detailman have to pay for one or more of these services wholly on his own. In all other cases, the company paid the complete cost or shared on a fifty-fifty or better basis. In all cases, the salesman was provided an automobile at company expense. In five firms the automobile was used as an incentive, allow- ing the successful or long-service detailman to select an automobile of greater value than one of the low-priced three. In addition, his reason- able expenses in the course of doing business were reimbursed and not deducted from his commission income. On the average, the detailman's product. line obtained 37 0% of its sales from two products. Furthermore, he was often found compet- ing against other companies and their detailmen who sold the same product with 2a different brand name. . Sales managers have become increasingly. aware of the need for sound personnel policies and procedures as evidenced by the shift in number of firms using job descriptions, and the increasing sophistication of evaluation procedures. - However, the firms have considerable room 58 for improvement in this area, as evidenced by the lack of complete- nessin job descriptions, roughly formulated standards of performance, and a lack of behavioral science measurement methods. . Sales managers felt that the most important criteria for design- ing a sales compensation program were: (1) the program should be fair to both the company and the salesman; (2) the program should provide incentive to the salesman to perform his job requirements; and (3) the program should be understandable to the salesman. When asked to answer attitude questions regarding fairness, security, and incentive values, the areas regarding fairness and security (rated (1) and (2) in importance) were the least clearly formulated and agreed upon by sales managers. Managers as a group could not decide on a common definition of fairness, and their attitudes toward the subject were non-linear. Similarly, they were not clear on a common meaning of incentive values, nor did they hold a linear attitude toward incentives. - Only on the criterion which they had rated as low in importance had they formulated a linear opinion and attitude, namely the criterion of security. .Prudent acceptance levels found that: (1) high and low time— discretion requirements of the detailman's job are significantly associ- ated with high and low average compensation levels; (2) high and low managerial control is not significantly associated with high and low turnover, high‘and low average compensation, or high and low time- discretion requirements of the detailman's job; (3) high and'low time- discretion requirements of the detailman's job are not significantly associated with high and low turnover; and (4) while there was not a significant categorical association of high andalow average compensation level with high and low turnover, rank correlation analysis indicated a significant negative. association between turnover rankings and average compensation rankings of the firms. 59 ‘Similar prudence in factorial analysis of product concentration, managerial control, average compensation level, attitude score, 7 and time-discretion required by the detailman's job indicates that: (l) managerial control, in the presence of product concentration and average compensation level, is not a significant explanation of sales growth; (2) average compensation level, in the presence of managerial control and product concentration, is not a significant explanation of sales growth; (3) product concentration by itself is a significant explana- tion of sales growth, but, when in the presence of managerial control and compensation level is not a significant explanation; (4) the lack of managerial control, low product concentration, and‘low attitude score is significantly associated with low average compensation levels; (5) attitude score, in the presence of product concentration and time- discretion requirements of the detailman's job is a significant explana- tion of average compensation level; (6) product concentration, in the presence of attitude score and time-discretion requirements of the detailman's job, is a significant explanation of average compensation (level; and (7) time-discretion requirements of the detailman's job in the presence of attitude score and product concentration, is a signifi- cant explanation of compensation-level. A Guide For Sales Managers The sales manager who would improve or revise his company's compensation program should BEE begin with the compensation program itself. Instead, he must analyze and carefully re-evaluate the sales- man's job. A once effective compensation program does not become ineffective--the job changes. These changes may be quantitative or qualitative, the latter being more difficult to assess, and are the cause of the required change in the compensation program. 60 A company has certain objectives to be achieved by the market- ing division, and the methods selected to achieve these objectives will determine which functions are to be performed by the sales force. The functions of the sales force, when divided into geographic areas, customer requirements and product differences, yield the raw compon- ents for job compositions. These raw components, when weighted by value in achieving over-all objectives and arranged so that individual men can perform them, are jobs. A formal statement of the job and the methods required to perform the job is a statement of the job requirements. Job requirements may be categorized as requiring high, average, or low amounts of self-management in the form of time-discretion.3 A salesman capable of fulfilling the company's job requirements can be identified via modern personnel selection methods, and the firm can be categorized as having high, average, or low selection require- ments. From the two measures preceding, plus a categorization of the company's mean sales force compensation as to whether it is high, average, or low in the industry, one can begin to diagnose sales force performance. There are a number of ways in which job requirements, compen- sation level, and salesmen's selection requirements interrelate.‘ First, if job requirements, compensation level, and salesmen's selection requirements are all high, the firm will experience low turn- over, highly effective performance by the sales force, and a minimum 3The average referred to here is the industry average. By using the industry average, a normative base for measurement is available, thus giving operationally meaningful measures. I ‘See Elliott Jaques, Op. cit. , for a discussion of individual deveIOpment in "The Work-Payment-Capacity Nexus, " pp. 213—225. See-also Appendix XI for a brief explanation of his theory. 61 of required supervision as compared to industry averages. However, ~ it should be noted that high job requirements, highcompensationlevel, and high salesmen's capabilities cannot make up for poor products. 7 Similarly, they cannot overcome severe cyclical or secular decline. However, industry marketing statistics should allow one to estimate ~whether such declines are in evidence. .Second, if job requirements, compensation level, and salesmen's selection requirements are average, the areas of turnover, salesmen's effectiveness, and supervision required will all approximate the industry averages. This is due to a lack of a maximum cut-off point in selection testing, something which is a well-known phenomenon to personnel executives. The result is that while company selection requirements are of average stringency in the industry, it does not reject those men capable of handling substantially more difficult jobs. Thus, after a while, these highly capable men move on tojobs which are more challenging and which pay more. - Third, if job requirements, compensation level, . and salesmen's selection requirements are low, several peculiarities will showup: (a) sales force effectiveness will be extremely low as compared to the industry; (b) the supervision required will be much higher than expected for similar job'requirements in other companies, and the company will find it difficult to hire and retain field sales managers; and (c) turnover will not be a reliable index of worker satisfaction, compensation levels, or managerial effectiveness. This latter problem is due to the com- pounding effects of lowejob requirements, low compensation level, and low selectionrequirements, all of which are causes for leaving such~a job. . In some. cases, it might even be hypothesized that the company . wouldhave a very low turnover rate because the men knew they wouldn't be hired by any other firm. 62 Fourth, if job requirements are high, compensation level low, and selection requirements high, the company will findturnover is high, and that it is extremely. difficult to obtain the kind of man possessing the required capabilities. . Sales force effectiveness will likely be high, due to the fact that the men who-have been hired possess the capabilities to perform the job requirements. -Morale will be suffering, with an expectation of grousing about pay, and the required ' supervision will be higher than expected due to the rationale: "If they want me to perform a top-notch job they shouldpay me for it. " The alternatives for correction here are to increase the compensation level 4 or lower the job and selection requirements. .Fifth, .if job requirements are high, compensation-level low, and selection requirements low, turnover will be high, with sales force effectiveness considerably below the industry average, and required‘supervision will be very high. This is due mainly to the low selection requirements which allows men of. low capability to be hired and trained. This problem canrbe suspected when one finds that many of the men leaving the employ of the company were not performing up to the job requirements. The remedy is either to lower the job re- quirements or raise compensation and selection requirements. . Sixth, if job requirements are high, compensation level high, and selection requirements low, the turnover will be higher than expected, . sales force effectiveness will be less than expected, and‘the managerial supervision required will be greater than expected. This is due to men of less thanhigh capability being attracted to high paying jobs, being unable to perform effectively and yet unwilling to leave such a well-paying job. The key to recognizing such a (situationais when the proportion of men leaving the company, due toalack of performance, is considerably greater than the proportion leaving other high compensation and high job requirement firms for the same reason. 63 The remedy to this situation is to raise and improve selection require- ments. . Seventh, if job requirements are low, compensation. level low and selection requirements high, the turnover will be excessively higher than the industry average, sales force effectiveness will be above that expected, and the amount of supervision required will be less than expected. The higher turnover is due toimen' with high capabilities moving onto better jobs and/or better compensation. These men with capabilities in excess of the requirements will cause the effectiveness to be greater than expected and require less supervisory control than expected. The remedy here is to either increase the job requirements and compensation, or put an upper limit on capability wheneselecting new employees. 7 Eighth, if job requirements are low, compensation level high, and capability low, the turnover will be low and mainly, due to better qualified men moving on to jobs with a greater challenge. .Similarly, sales force effectiveness will be less than expected when compared to companies with the same compensation level. Furthermore, super- vision required will be less than expected due to the men who haven't moved on to better jobs. The remedy here is to either lower the compensation level or increase job and'selection requirements. , Ninth, if job requirements are low, compensationlevel high, .and selection requirements high, turnover will be above the industry average vandemainly due to men leaving of their own. volition to accept more challenging jobs elsewhere. Sales force effectivenessawill be greater than expected for the low job requirements, and supervision required will be less than expected as the meniare capable of handling much more demanding job requirements. The remedy here is either to lower the selection requirements and institute a maximum cut-off point plus lower the compensation level, or raise job requirements. 64 While similar interpretations could be applied to average versus high and average versus low measures, a problem of significance arises. Namely, average compensation level, high job requirements and high selection requirements might not yield a meaningfully higher than expected turnover rate. The key to the whole analysis, as outlined above, is the area of job requirements. Job requirements are dependent upon the objectives to be achieved by the marketing division and the arrangement of the raw components into jobs. Once the job requirements are set, the key to optimum effectiveness is in bringing compensation level and selection requirements into line with the job requirements. While job require- ments can be raised or lowered, they are generally confined within a range dictated by the SOphistication of the purchaser, complexity of the market, and the technical nature of the product. However, it should be pointed out that these are subject to change via a change in marketing and/or product strategy. Regarding the compensation program, the manager who would improve or revise his company's compensation program is still not ready to do so. He must assess the information coming from the salesman, the information going to the salesman, and set standards of performance-~qualitative and quantitative. A salesman cannot be responsible for his performance unless he receives a valid and con- tinuous feedback from management in the form of reports and work— with evaluations. Similarly, if the sales manager's objectives are not relevant to the feedback going to the salesman, the salesman cannot remedy any shortcomings himself but must rely upon management to call it to his attention and explain what the problem is. Many insecure managers probably limit the information going to the sales force in an attempt to justify their existence. However, this gets into the realm of communications analysis, which is beyond the scope of this dissertation. 65 Once the manager has examined and renevaluated the job, reasoned through the questions of job requirements, compensation level, and standards for selection; plus reassessed the standards of performance, and evaluated the communications to and from the salesman for relevance, he is then ready to improve or revise his compensation plan. All of the foregoing is necessary because the level of compen— sation and the procedures of evaluation are probably more important in the pharmaceutical field than is the method of compensation. In fact, the more complex the job, and its requirements and capacities needed, the more important are the behavioral methods for evaluation. With the behavioral methods of evaluation, commission plans based on total sales, or sales of particular products, are not very relevant. A commission based on profitability of the territory and merit in- creases for excellence are probably much more relevant as they are more closely related to the total job requirements than are commis- sions on total sales and sales of specific products. A company which expects a high element of growth in sales and profits probably would do better to have some form of commission on profits rather than rely solely upon merit increases. Similarly, a company which is very large with many products, without an ex- ceptionally strong concentration on any one or two products, can prob- ably expect to grow at about the industry average, and probably would do better to rely upon high compensation levels with merit increases, as they will dealing with a number of products which are in the nature of "loss-leaders. " Finally, the manager must come to grips with what is a meaning- ful incentive to his men. In the pharmaceutical industry, call commissions, contests, sales increase commissions, etc., probably are not very meaningful to the men owing to the strong success of 66 firms which have a high concentration in a few fine products--a situ- ation over which the salesman has little control. -Furthermore, he must decide on a criterion of fairness which is acceptable to him and his men-i-otherwise there is likely to be a serious misunderstanding regarding "run-away" products, a "plum" territory, wholesale and house account sales, and finally, adverse economic conditions. Interpr etive C onc lusions This section is not devoted to the acceptance or rejection of hypotheses, but has the purpose of inferring further research. The most concise explanation for such an attempt is that given by Sir Ronald A. Fisher: Convenient as it is to note that a hypothesis is contra- dicted at some familiar level of significance such as 5% or 2% or 1% we do not, in Inductive Inference, ever need to lose sight of the exact strength which the evidence has in fact reached, or to ignore the fact that with further trial it might be stronger, or weaker.5 First, regarding compensation, it is apparent from this research, the excellent work of Elliott Jaques, 6 and present day behavioral management theorists that: (1) compensation level is an important factor in effective job performance;7 (2) the compensation program is effective only in so far as it compensates for the total job performance; (3) the parameters for compensation level are the time-discretion 5Sir Ronald A. Fisher, The Desijg of Experiments, 7th ed. A (New York: Hafner‘ Publishing Company, Inc. , 1960), p. 25. 6Elliott Jaques, op. cit. 7Jaques further'asserts that it is important to individual develop- ment and mental health. ability of job; and 1 science t evaluate An 15 prima detailma; seem to 1 Furthern effective: utilize t1: Ne: grams, t to the CO: iIEmS art 1?.Cent‘1Ve the reaSC of mpon attitudes ILCeDUVe they do n more eff. and (2) t}: 67 ability of the individual and the time-discretion requirements of the job; and (4) the parameter for a compensation program is the behavioral science understanding on the part of management, i. e. , the ability to evaluate the total job. An important implication of this research is that high turnover is primarily a function of low time-discretion requirements of the detailman's job. If so, job design and evaluation procedures would seem to be important variables which can be controlled by management. Furthermore, it is probable that managerial control can add to the effectiveness of high time-discretion requirements and more fully utilize the abilities of college graduates recruited by the industry. Next, regarding the criteria for designing compensation pro- grams, the most important are: (1) incentive value, and (2) fairness to the company and the detailman. Among sales managers, these two items are a source of disagreement. It is probable that security and incentives are inversely related to a significant degree. However, the reason for their beinginversely related is not known and would be of importance in further research. Similarly, a study of detailmen's attitudes toward security and incentives would be most helpful. - Incentive values, as traditionally conceived, are over-simplified as they do not encompass the notions that: (1) an incentive can be no more effective than the evaluation procedure upon which it is paid; and(2) the basic incentive of a person is to realize fully his own capabilities of which time-discretion is one measure. . The most promising relationship to be tested in further research is that of time-discretion ability and incentives designed to allow a person to earn more money for a fuller use of this ability. This would require a closer look, in depth, at the detailman's job, job satisfaction, time-discretion ability required to communicate effectively with 68 physicians, and their relation to profits, turnover, sales, and various qualitative standards of performance. . Finally, with further research using more precise definitions and measures, management would probably be found to be_the single most important variable determining and explaining marketing effective- ness. This would result in a much greater emphasis on comprehensive management development. Ethical pharmaceutical sales management is more sophisticated than most industries, but it also has greater opportunities to improve. iii str; basis f( Product Structu; \ APPENDIX I SAMPLE SELECTION Prior Experience of the Researcher During the previous three years, this writerhas studied-a number of the ethical pharmaceutical industry marketing problems. The scope of these problems ranged from detailing, and sales training to physical distribution, product strategy and general market- ing strategy. The experience gained has provided a more insightful basis for gathering and eValuating information regarding market strata, product areas, marketing procedures and industry characteristics. . Structure of the Industry The domestic ethical pharmaceutical industry is difficult to isolate in terms of identifying the firms comprising the industry. The task is even more difficult when accurate industry sales and profit figures are sought. The definition of an ethical pharmaceutical company is: (1) It manufactures pharmaceutical preparations for human use; and (2) promotional informationefor deciding to purchase and use the product is given only to the physician and pharmacist. This means that an ethical pharmaceutical manufacturer cannot adver- tise or promote a product by advertising or promoting directly to the consumer. From this definition, a company which produces pharmaceutical preparations for human use but sells only to other companies forthe purpose of promotion and distribution is an ethical pharmaceutical supplier. Similarly, if a company manufactures pharmaceutical chemicals 69 for sale 1 forms, It Th: efical p1 products With phar areas of of this th the Sin of estabh‘ Are Probe Many 651 35151in sh. *E‘ie 250 70 for sale to other companies who in turn reprocess and prepare dosage forms, then the company is an ethical pharmaceutical industry supplier. The Standard Industrial Classification, number 2834, includes ethical pharmaceutical suppliers, proprietary firms which advertise products to the consumer, (e. g. , "One-A-Day" brand vitamins), firms with pharmaceutical by-products which are primarily engaged in other areas of manufacturing, and finally the firms which are the concern of this thesis: ethical pharmaceutical firms which are wholly or primarily engaged in manufacturing ELIE selling pharmaceutical preparations for human use. Regarding S.I.C. 2834 as an industry, the United States Bureau of Census states: Since specialized equipment or relatively large invest- ments in capital are not prerequisites for many products primary to the industry, the industry is characterized by the presence of a relatively large number of small firms. In 1954, approximately 62 percent of the l, 163 establishments classifi- fied in this industry had fewer than 10 employees, and in 1958 the comparable percentage is 59 percent.1 Since the United States Bureau of the Census collects data in terms of establishments (a manufacturing location) and not companies, there are probably considerably fewer companies engaged in the industry. Many establishments can be eliminated as being suppliers or proprietary establishments or not primarily engaged in ethical pharmaceuticals. A further'categorization reveals that only 58 establishments have 250 or more total employees.‘2 With less than 250 employees, a company would probably be unable to field and back up administratively an effective regional sales force and thus would have to be primarily a supplier. From this base of 58, one must subtract the 12 establishments lU. S..Bureau of the Census, op. cit., p. 28c-2. zlbid., p. 28c-7. 71 having more than 500 employees and which are primarily suppliers and/or proprietary non-ethical pharmaceutical establishments. This leaves 46 establishments which are virtually the ethical pharma- ceutical manufacturing and sales industry. Market share information for 1959 is shown in Table 22. This is the latest information of a meaningful nature available to this researcher. As an establishment and a company are not the same, and the researcher did not have information to judge what division of what company was primarily ethical as opposed to a proprietary or pharma- ceutical chemical supplier, an executive for an ethical pharmaceutical company identified the thirty-four unknown establishments and selected the sample. For the sake of simplicity, the sample establishments are hereafter referred to as firms. The weighting plan was simple and consisted of three population strata, each with a known percentage of the market. Thus, market share figures would be the basis for weighting sample values to arrive at an unbiased estimate of aggregate industry values. However, the firms involved would not give actual dollar sales figures so an alterna- tive plan of weighting was used. The first stratum, consisting of the first three firms in Table 22, was given a weight of 20. 5% of total industry sales, and sample respondents were given a weight of 1.0. The second stratum, consisting of the fourth through the twelfth firm in Table 22, was given a weight of 30.0% of total industry sales, and aggregate estimates for this stratum, based on sample respondents (seven of the nine were included in the sample and all seven responded), were given a weight of l. 34%. The third population stratum, consisting of the thirty-four remaining firms, was given a weight of 41. 5% of total industry sales. The eighteen respondents posed a slightly different problem in that neither their 1959 nor 1961 percentage share of the 72 Table 22. Domestic Ethical Pharmaceutical Market Shares - 1959 Company 1959 Percent of Market Eli Lilly 7. 5 Upjohn 6 . 9 Smith, Kline 81 French 6. l Lederle 5. 9 Parke-Davis 5. 8 Wyeth 5. 2 Merck 5. 2 Squibb 4. 4 Abbott 3. 8 Pfizer 2. 6 CIBA 2. 6 Schering 2. 5 All others (34 companies) 41. 5 100. 0% Source: PriVate and not to be disclosed. market was known. Thus, aggregate estimates for this stratum were assigned a simple weight of the inverse of the sampling fraction for this stratum, or a value of 1.89. -A total of thirty-three firms were selected from the forty-six comprising the industry. Interviews were sought with twenty-three firms and obtained from twenty. 73 Of the three firms refusing to be interviewed, two pleaded a lack of time for an interview and one, after agreeing to an interview, refused to answer questions. -One firm, which refused to be interviewed, completed a mail questionnaire. The remaining ten firms were mailed a questionnaire and seven responded. Thus, from a population of forty-six, thirty- three firms were selected to be included in the sample, and twenty- eight of the thirty-three responded. APPENDIX II DESIGN AND ADMINISTRATION OF THE QUESTIONNAIRE Design of the Questionnaire Six primary topics were selected as the focus of investigation: 1. The salesman's job requirements 2. Selected aspects of the sales manager's job. 3. Procedures for evaluating salesmen's performance. 4. Attitudes of sales managers toward various selected criteria for designing a compensation program. 5. Actual compensation procedures used in the ethical pharmaceutical industry. 6. Various measures of corporate effectiveness. First, regarding the salesman's job requirements, if companies have carefully and thoroughly formulated a job description, complete with standards of performance, no other information would be required. However, it was expected that there would be great differ- ences in the completeness and specificity of job descriptions, so three items were included in the questionnaire in order to give a gross estimation of whether job requirements were high or low. These items were: (1) the desired and required level of education for salesmen; (2) managerial efforts to control salesmen's routing and detailing efforts; and (3) the frequency and complexity of formally evaluating detail salesmen's performance. Second, 7 selected aspects of the sales manager's job regarding supervision were assessed. . While a complete job description would 74 75 have sufficed, it was again expected that there would be great differences in the completeness and specificity of sales managers' job descriptions. Consequently, additional items were included in the questionnaire to give gross approximations as to whether supervision requirements were high or low. These items were: (1) whether or not the company attempted to control the salesman's routing of his territory by means other than general supervision; (2) whether or not the company required the salesman to use a memorized or preplanned detail; (3) whether or not the field selling force was responsible for trade relations and trade conventions; (4) whether or not the company gave the salesman an expense budget or specified fixed limits per day for food and lodging; and (5) the frequency and complexity of evaluations for determining compensation and apprising the salesman of his performance. Third, the procedures for evaluating the salesman's performance were examined in terms of: (1) whether or not field sales managers completed a written evaluation with a standard format or printed form and discussed the results of evaluation with each man; (2) how frequently the salesman was formally evaluated; and (3) the procedures and criteria used for evaluating performance. From each company performing a formal evaluation, a copy of the evaluation form, along with instructions for-the sales manager's use of the form, was requested. ' Fourth, sales managers‘ attitudes toward various selected compensation criteria were assessed in two ways: (1) three behavioral criteria were to be measured by constructing attitude inventories for each, administering the inventories and analyzing replies according to ~ Scalogram procedure;1 and (2) sevenfrequently mentioned criteria (including the three in (1) above) were to be placed in rank order by each respondent from most important to least important. 1The inventory was designed to beanalyzed by Guttman techniques. The basic reference for this technique is found in Samuel Stouffer, et a1. , Measurement and-Prediction (Princeton, N. J.: Princeton University _ Press, 1950). 76 'An attitude inventory was constructed for each of the following three criteria: (1) that a compensation plan should provide security for the salesman; (2) it should also provide an incentive to the man to perform his job requirements; and (3) the plan should be fair to the salesman and the company. i The foregoing criteria plus the following four were to be ranked in order of importance: (4) the compensation plan should be easily administered; (5) it should have sufficient flexi- bility to meet changing requirements; (6) it should be understandable to the salesman; and (7) the plan should not be expensive to compute and operate. Fifth, actual compensation procedures were assessed by: (l) determining the actual amounts paid to the salesman by the sample companies; (2) determining the method of computation used; (3) deter- mining how joint bonuses or commissions are divided; and (4) request- ing a copy of the company's written compensation policy and/or program. Finally, the last section of the questionnaire was reserved for assessing various measures of corporate effectiveness. These measures were: (1) turnover; (2) number of sales districts; (3) number of managerial field units consisting of a manager and his subordinate salesmen; (4) salesmen's expense as a percentage of total sales; (5) the number of pharmaceutical invoice lines sold during the year; (6) the number of pharmaceutical orders per year; (7) the number of different pharmaceutical products sold by the company; (8) product concentration estimates; (9) total pharmaceutical sales for the year; (10) fiscal year net profit on pharmaceutical sales; and (11) the methods of distribution used and the amount of total sales sold through each method of distribution. The key items above are sales in dollars and profits in dollars as they are the common base upon which to calculate meaningful ratios and estimates from the other items. 77 Administration of the Questionnaire Once the questionnaire was designed, a pretest sample of four firms was selected. The questionnaire was then administered by interview procedure to policy-level sales and marketing executives of these firms. The purpose of the pretest was to examine the effective range and'semantic difficulty of questions. From the pretest interviewees' responses to the questionnaire several important changes were made. (1) A number of questions were found to be semantically meaningless in that what meant one thing to one executive meant something else to another. These questions were revised, and special terms were more carefully defined. (2) Where two questions were intended to approach the same area or topic from a different viewpoint, executive respondents often did not perceive the intended distinction. Consequently a number of questions were deleted. .. (3) From discussion with the interviewees, a number of questions which had not been included were formulated and included in the final questionnaire. (4) In view of the amount of information to be elicited from busy executives, a major change in sampling pro-e cedure was made. Rahter than rely upon responses by mail, it was decided to interview as many firms as possible within budget limi- tations, and use the mail for the remainder. The questionnaire, as finally administered by interview to twenty firms and by mail to eight firms, proved more than adequate in its rangeaand in the complexity of questions. - While more complex ques- tions and data were desired by the investigator, such data were not available without considerable cost to the firms and were outside the budget of the investigator. Similarly, a number of questions, phrased simply and in a straightforward manner, were not answered by respondents due to a policy of secrecy in some cases and a lack of the desired data in others. 78 The approach used to solicit cooperation was different for inter- view respondents as compared to mail respondents. Both groups were mailed a questionnaire with a signed certification regarding the confidential nature of survey replies. In addition, a cover letter was enclosed which urged the recipients to agree to become sample respondents. The letter used for the mail sample is shown as Exhibit 1. The interview sample was mailed a different letter (Exhibit 2) pointing out that they would be telephoned in the next few days to set up an interview date and time. Interviews were sought from twenty-three firms, twenty-one agreed to be interviewed, and twenty were finally interviewed. Of the ten firms requested to participate as mail respondents, seven agreed and forwarded the necessary data. The three who refused were telephoned and requested to participate as interview respondents, however, they still refused. The complete questionnaire, including the certification, is shown as Exhibit 3. 79 ~ EXHIBIT 1: Cover Letter for Mail Sample July 24, 1962 Mr. Dear Mr. . We hardly need to mention the importance of the problems of the ethical sales force. Most of them have never benefited from careful, independent research. The aim of our research is to measure variations in practices, trends and correlations of management in terms of the detailing sales- man . . . and, in correlation with criteria of corporate success, such as growth. You might ask: why is this a survey of the ethical sales force? We believe the ethical sales force represents one of the purest forms of modern selling and is of great importance to corporate success. The only need is your execution of the questionnaire. As you well know a 100% response from cooperating firms is important. A certification of this research is enclosed with the question- naire. As a participant you will receive an advance copy of the survey results. We are certain you will find this valuable. .It is possible that this research may make discoveries or inter- pretations of significance to managements. We thank you sincerely for your c00peration which we hOpe will be prompt. Very truly yours, Gary A. Marple John H. Wieland Research Directors Attachments: Questionnaire (3 copies) Dr. W. J. E. Crissy Return envelope Advisor ll ethical lndepen T trends ; man as grovl Y We bell Ofmode imPOI‘ta A: reSults. It the qUes: We 80 . EXHIBIT 2: Cover Letter for Interview Sample July 24, 1962 Dear Mr. 9 We hardly need to mention the importance of the problems of the ethical sales force. -Most of them have never benefited from careful, independent research. The aim of our research is to measure variations in practices, trends and correlations of management in terms of the detailing sales- man . . . and, in correlation with criteria of corporate success, such as growth. You might ask: why is this a survey of the ethical sales force? We believe the ethical sales force represents one of the purest forms of modern selling and is of great importance to corporate success. 'The only need is your execution of the questionnaire. As you well know a 100% response from COOperating firms is important. A certification of this research is enclosed with the questionnaire. As a participant you will receive an advance copy of the survey results. A We are certain you will find this valuable. It is possible that this research may make discoverieS‘or inter- pretations of significance to managements. . We will telephone you for an appointment to visit you to execute the questionnaire. We thank you sincerely for your cooperation. Very truly yours, Gary A. Marple John H. Wieland Attachments: Research Directors Questionnaire (3 copies) Return envelope Dr.- W. J. E. Crissy,‘ Advisor EX] A S FOLICII‘JS ET} 3‘. 0031 Lap, 81 EXHIBIT 3: Questionnaire Used in Research-- Final Form Bureau of Marketing Research Graduate School of Business Administration Michigan State Univer sity A Survey of Pharmaceutical Marketing and Sales Executives on POLICIES AND PRACTICES AFFECTING MARKETING PERFORMANCE OF ETHICAL PHARMACEUTICAL FIELD SALES PERSONNEL Dr. W. J. E. Crissy, Advisor Gary A. Marple John H. Wieland Research Directors East Lansing, Michigan July 23, 1962 82 (This certification is for your file) C ERTIFICATION This survey is conducted entirely under the research auspices of Michigan State University as a part of the University's doctoral research program in business and for this purpose only. Cooperation is with the University only. All information is supplied, held, analyzed and treated in strictest confidence. Answering firms will not be identifiable. They will be number-coded during processing of the statistics. Final statistics will be in the form of aggregates. Thus, all data will be anonymous. If you request, an advance summary of the findings can be forwarded for your approval. Valid research requires complete response from all firms. Your fullest c00peration, therefore, is respectfully requested with sincerest appreciation. July 23, 1962. Gary A. Marple John H. Wieland Research Directors 83 About this Questionnaire. . . . . The importance to you of the many problems of management of the ethical sales force scarcely needs mention. The term "marketing concept" has become virtually a manage- ment cliche. Yet no basic, new thought has come forward in many years regarding the essential element, the sales force. Especially is this true as to the ethical pharmaceutical salesman. Those managements that have been intimately consulted say they feel this present research has high promise of value. We think it can be significant to you as a participant. Your participation is urgently requested. The questionnaire has been extensively tested. - It is planned so that it will be the least burden possible on you. Three copies of this questionnaire are supplied to you. Two copies are provided to facilitate your execution, for working papers and for your file. This will permit your routing to other of your departments if necessary. One completed copy should be returned to us in the enclosed envelope. 1. For many questions, answers are requested for 1956. However, a majorjurpose of this questionnaire is to measure change or trend. Therefore, on questions asking for figures and statistical data, if 1956 was an unusual year, such as one affected by mergers, consolidation or expansion so that information is difficult for you to obtain, please feel free to substitute 1955 or 1957. . On questions regarding policies or practices, if there was a major cha‘nge of a policy in question during the years 1954, 1955, 1956 or 1957, please use the year preceding the charge as the basis for answeripgcpuestions related to thatpolicy. Whenever you use a substitute year, please indicate so. AI researc‘ theSe. 84 2. Please check carefully to insure completion of the question- naire, this is to see that all answers are filled in, especially those from other departments, unless the information is unavailable. 3. If additional space is needed for any answers, or if you wish to make additional statements, please feel free to use the reverse side of the page. Merely identify the statement by the question number. 4. If practices or policies vary in your company please answer the questionnaire in terms of your prevailing practice or of your general policy. 5. It is our request that this questionnaire be executed by line executives at the policy level of the sales organization. , We thank you most sincerely for your cogperation. An advance copy of the survey results as well as a report of the research will be sent to participants. We are certain you will want these. 7.. Di 3. de 58. B; 131301} Di 5. I0 5 . eras... .16. S. ’1 Dd 00 amatdfice W egaOh '0 O p1.1mmpt k 7 ..~.\ C 85 1956 period Present A. About the sales job and the inexperienced salesman High school C] . . . . [:1 Part college [:1 . . . . [j 1. In hiring an inexperienced sales- College grad [:1 . . . . :1 man, what did you consider the Post grad C.:] . . . . [:1 minimum educational requirement? Other: > please specify- 2. . What education did you consider desirable? Please specify level: Please specify type (i.e. , whether and how much pharmacy, business . administration, liberal arts, etc.): 3. Did you use a separate written job description* for inexperienced salesmen? yesD nol: yesD not: 4. When did you last revise this job description? * year B. About the field salesmen's supervisor 5. Did you use a written job descriptionfu< for the field salesmen's supervisor? yes D not: yes :1 not: 6. When did you last revise this job description?* year . C. Now, about your experienced salesmen 7. Did you use any written job description* for salesmen? yesm noD yes [:3 now 8. When did you last revise this job description?* year *Please supply a cw of each job description for eachyperiod, if one used, identifyipg by date. Please define "job description" as a written analysis, made available to all concerned, of a sales position encompassinLthe pur- poses, obfpective, duties, responsibilities, methods, and/or authorities of the position. Thank you. ll 1?. 86 1956 period 9. What was the percentage distribu- Physicians tion of time that you desired of Druggists these salesmen? Hospitals Wholesale drughouses Other 10. . What training, formal or informal, none 1:] for experienced salesmen was used in addition to training on products, face-to-face salesmanship, deals, execution of reports, advertising? 11. 12. % % % % % Present none :1 If used, please list subjects and explain, using reverse side to explain in full. % % % % % Please describe how your formal training, if any, of experienced salesmen has changed, if it has, over this period, i. e. , changed regarding (a) purposes and (b) content (not training media or technique). Please describe how your informal training (i. e. , "work with" or other local training by supervisor) of experienced men has changed, if it has, over this period? 15. 16. 19. Z( 13. 14. 15. 16. 17. 87 Did you make any specific effort . (other than through generalized training, general meetings, or generalized supervision) to con- t_r_ol how the (experienced) salesman spends, or routes, his time? Did you require daily *reports ? Did you require weekly *reports? Did you require any other regular, periodic *reports ? Did you require any other, non- periodic *reports ? D. Now, about your administration of salesmen 18. 19. Was the frequency of personal, field supervisory contact with experienced salesmen up or down from the previous period? Do you in any ways consider your salesmen to be managers ? 20. If "yes", why and in what ways? If "no", why not? 1956 period Present yesm not: yesm not] If yes, please explain, using reverse side to explain in full. yes [:1 noD yesD no): yesm 1101:] yesD not: yes [:1 not: yescj not: yesm not: yesIZJ not: up CZ] down :1 same 1:] yes [:1 no [:1 yes [:1 n05 * Please sppply a copy of each report, identified by date and by required fre- quency, in so far as possible. Thank you. (:01 his 23. Ha- 2. Dic anc sup 2 It e S l E m S 0 a f r a .1 e 0 .1 I 1.. a P p s tn at d.% 5.... k 88 1956 period Present 21. By what criteria did you evalu- Please check. If more than one ate experienced salesmen for checked, please number in order purposes of compensation?** of importance. By total sales . . . . . CZ] . . . . :3 By total sales quota or standard . t3 . . . . C.:] By sales of particular products a . . . . [:1 By quota or standard for particu- lar products . [:1 . . . . [:3 By ***margins on . [:1 . . . . [:1 (please specify) ‘ Other: please specify fullpand in detail (using reverse side to answer if necessary). :3 . . . . D D . . . . [:3 t: . . . D 22. Did you provide any marketing assist- ance personnel (in addition to his yes [:1 no [:3 yes :3 no :3 supervisor) on whom the salesman might call for aid in development of If yes, please check below: _ his territory or of particular Sales or potential contacts? analysis 1:] . . E Technical service D . . [:1 Promotional aid D . . [:1 If other, please specify: 23. Have you had any increased interest in or given increased consideration to such marketing assistance (as in preceding question) since the earlier period? yesg nOE ** Please note that for the purpose of this question the method of compen- *** sation is irrelevant. The questionpertains tgour mil: evaluation of W men on (and for) theirp'obs. Please consider' "margins" for this usage to include actual margins or profits, or transfer price, calculated or assumed mapgins,_gposs or net. 89 1956 period Present 24. Have your salesmen shown any increased interest in such market- ing assistance since the earlier period? yes 1:] not-:1 25. Did you use expense budgeting in the allocation of or for the usage of. . . . yescj not: yest-J nom If yes, please check if budgeted for for for for **district salesman **district salesman Samples . . [:1 [:1 [:21 E: Literature . . . [:3 [:3 [:1 [:1 Deals, bonus or extra goods [:1 E [:3 Technical services . a [:1 D C: If other, please specify: [:21 [:1 1:! [:1 LI] 1:! [:1 1:1 26. What written production reports Please checkj,_fh provided to salesmen. did you provide to your salesmen Please specify frequency provided. of their performance Frecpiency Frequency 1. Total dollar or unit sales E: D 2. Particular products sales [:1 [:1 3.. Sales to each account C3 [:1 4..Sales to selected accounts :3 C21 5. *Margins on I: [:1 (please specify) If other, please specify and explain fully (using reverse side if necessary): 6. 1:1 I: 7- 1:! C21 8. 1:1 I: 9- [:1 I21 * Please con51der "marglns" for thls usaje to include actual margins or profits, or transfer-price, calculated or assumed margins,:gross or net. *>l< Please define "district" as the administrative unit confinised of salesmen and the first echelon manaEr. 90 1956 period Present 27. If reports (see preceding question) Please specify by number or write provided to salesmen, which ones ALL: , , compiled and produced from your , , , , , , general office? , , , , y , 28. Did you use EDP (computer) pro- duction for any of these reports to salesmen? yes 1: no G yes [:1 no [:3 29. Did you use formal evaluation interviews between the salesman and his supervisor (i. e., at regular intervals and w_i__th use of printed company *forms) ? yes [:1 no 1:3 yes :1 no :1 30. - If "no" to preceding question did you use informal evaluation inter- views (i. e. , without company forms even if at regular intervals)? yes [:1 no C.:] yes [:3 non If "yes" to either of the preceding questions: 31.. What was the frequency of such Please specify quarterly, annually, evaluation interviews ? etc. 32. What did you consider the three Please list in order of importance most important criteria or subjects (using reverse side to explain of evaluation included in these clearly if necessary): interviews ? E.. With regard to compensation 33. Regarding the total number of full-time pharmaceutical salesmen employed by your company, please estimate as accurately as possible the following information: * Please sppply a copy of each form identified by date and frequency. Thank you. 91 1956 1961 What amount of money did the average man in the highestpaid 10% of the sales force earn during the year? What amount of money did the average man in the lowestpaid 10% of the sales force earn during the year? What was the average amount earned per man for the total sales force during the year? 34. Are any of your salesmen members of a union? yes'tj not-:1 yes [:3 not: 35. If yes, approximately what percent? % % 36. Also if yes, what, in your opinion was the reason for salesmen join- ing the union? (use reverse side if necessary) 1956 period Present 37. Are salesmen expected to perform a specified number of calls per man per week? yes [:1 no [:1 yes [:3 no a 38. Are automobiles used for travel-? (If not, go directly to question 47) yes [3 no 1:] yes [:1 no [:1 39. If yes, have your policies* regarding purchase, use and reimbursement changed from the last period? yesC: 110:] * Please s_upply a c0py of these policies, both those presently in force and those of the preceding period, if available. If the policies answer questions 40 throuph 46, omit them and go directly to question 47. 92 1956 period 40.. Please check as to whether automobiles are: a.» Company owned b. purchased and owned by salesman c. leased d. other (please describe) 41. If purchased and owned by salesman, did your company assist him in purchasing the car? yes D 42. If yes, please describe how the company assisted in purchase: 110:1 43. If automobiles are privately owned by the salesman, how are the salesmen compensated for the use of their auto? (check those which apply) a. flat allowance per mile b. flat amount per month c. combination amount per month plus allowance per mile d. other (please describe) 44.. If automobiles are "company owned, " "leased, " "other, ” or if the company assists in purchasing a car owned by the salesman, does the salesman have a choice of makes and models to drive? yes [:1 DOS Present 168:1 not: yes 1:: HOE 93 1956 period Present 45. If yes, what makes and models were available to him? (use reverse side if necessary) 46. How were these choices deter- mined? (For example: "'Men working with the company for more than five years may have their choice of any automobile up to and including a Pontiac Bonneville, " etc.) (Use reverse side if necessary) Rpgardipg questions 47 througp 51: If you have written policies and pro- cedures oncompensation, please provide a copy. If the written - statements contain all of the answers needed in questions 47 through 54, omit and go dir-e-c—tly to question 55. 47. -Regarding your present compensation program, please complete the following by placing a check mark in the relevant square for each group of salesmen in your company. (Under the column headings, if you separate your salesmen intovmore than two categories of "trainees" and ‘ "experienced salesmen, " please specify them under the "other" head- ings and indicate their method of compensation separately. ~ If compen- sation is optional with certain salesmen's categories, please state "optional" in the relevant squares under that category.) w-.1 experienced Method of compensation trainees salesmen other othe r Salary only Salary Ms commis sion Salary plus bonus Salary, bonus and commission Bonus only _ Commis sion only Drawing; account with bonus or commission Other (pleas e desc ribe below) 94 48.. Please indicate, by placing a check in‘the rrlevant square, the method used in computing the bonus or commission to be paid: Method compu- tation train- ees experienced salesmen other other computation re- lated to quota? yes no Percent of gross margin Percent of sales Bonus for each product category [New account sales Profitability of sales Other (please describe below)| 49. - Is the commission or bonus portion of your plan: (check one) a) related to identifiable and direct efforts of individual salesmen? b) pooled and then divided among the men? 50. If pooled, how is the pool divided? a) management judgment only. b) specific performance factors which are discussed with the salesmen. c) other (please describe) 51.. Did you reimburse for meals and lodging expense ? 1956 period yes )3 52. If yes, did you specify fixed limits per day for meals and/or lodging? yes E 53.. Or, if yes, did your salesman have a budget for such expense? MI: 110:] not-j DOD Present yesm nOEj yes :1 noD yes [:3 not: 95 54. Some companies provide items such as pension plans, life insurance, etc. , free of charge to salesmen. Others enable salesmen to pur- chase the items at a reduced rate by special company arrangement or by sharing the costs of such plans with the salesmen. Please indicate with a checkInark in the appropriate squares whether the following items are provided for, or available to the salesmen. If yes, please indicate who pays for the items. Provided for or Paid for by: available through yes no company arrangements: company salesman bothE Pension or retire- ment plan Hospitalization insurance** Insurance for ~ - J.: PhySiCian's fees* 0‘ Life insurance Auto insurance Other (please specify) >l< If both contribute to the expense, please indicate the approximate pro- portions of contribution by giving the percent paid by the company. >l<>l< Hospitalization insurance is defined to mean an insurance policy which covers the patient's costs for rooms, services, and diagnostic and therapeutic facilities while hospitalized. An example would be the Blue Crosgglan. *** Insurance forphysmian's fees is defined to mean a policy which covers pgysician's, sppgpon's and specialist‘s fees while hospitalized or in emergencies and excppting routine office calls. An example would be the Blue Shield plan. 96 "Regarding questions 55 through 80. These questions are in regard to attitudes and opinions on salesmen's compensation. .Consequently, they must be completed by a line sales executive at the policy level. When completing the following questions, please answer from your own personal point of view, rather than from the company's point of view or as an industry representative. IInmediately below each of the following statements you will find five letters, A, B, C, D, and E. Please read the statement and then circle letter‘ "A" if you strongly agree, ‘ "B" if you agree, - "C" if you are undecided, "D" if you disagree, and ”E” if you strongly disagree. 55. An experienced and competent salesman thinks of opportunity rather than security of income. A B C D E 56. The experienced and competent salesman is not concerned regarding week-to-week or month-to-month fluctuations in earnings, but concen- trates on total annual earnings. , A B C D E 57. Salesmen as a group are generally less concerned with security of income than are other employee groups. A B C D E 58. The important factor is not security of income, but rather, the salesman's self confidence of his sales ability. If his selfconfidence is high, his concern with security is low and vice versa. A B . C D E 59. Our company sales compensation plan is too concerned with security. A B C D E 60. There is some minimum amount of security needed in any sales compensation plan. If this minimum amount is not provided, one finds it very difficult to hire and retain good salesmen. vA B .C D E 61. 62.. 63. 64. 65. 66. 67. 68. 69. 97 Too much security of income will cause poor salesmanship. A B C D E Salesmen in the ethical pharmaceutical field today have too much income security. ' A B C D E A good sales compensation plan always provides an incentive to the salesman to earn more money. A B C D E Money is probably the strongest incentive affecting salesmens' performance. A B C D E One of the major problems in using a commission plan is that it tends to cause salesmen to "oversell" the customers. A B C D E Sales contests tend to undermine the professional attitude toward selling. A B C D E An automobile is an extremely important incentive to salesmen. A B C D E -A sales compensation plan should not have a maximum earnings limitation. The salesman should be able to earn as much-as he is able, even if it is more than the sales manager's income. a A B C D E There is probably too much emphasis on incentives today; either a man is an interested and effective salesman or he isn't, and incen- tives won't change his behavior very much. - A B C D E 70. 71. 72. 73. 74. 75. 76. 77. 98 Group incentives such as a bonus pool or shared commissions are more meaningful to the company because selling is a team effort. A B C D E Contests, properly designed and operated, are more effective as an incentive than are commission or bonus plans. A B C D E Non monetary incentives such as free trips to Europe, outstanding salesman of the year awards, etc. , tend to be more important to salesmen than cash incentives. A B C D E What a manager considers as being a fair and equitable compen- sation plan is often different from what a salesman considers as fair and equitable. A B C D E To be fair, a compensation plan should provide a salesman with earnings which are at least equal to the average earnings of sales- men in his industry. A B C D E Men of equal productivity should receive equal pay regardless of time with the company. A B C D E A guaranteed minimum income is fair to the salesman, and a guaranteed maximum is fair to the company. A B C D E A salesman should not be allowed to earn an income which is equal to or greater than his superior, because the salesman does not have managerial responsibilities to perform. A B C D E 78. 79. 80. 99 A sales compensation plan should provide additional income for additional investments of the salesman's leisure time in suchactivities as night school, extra training sessions, special duties, etc. A B C D E In the final analysis, it is measurable sales results that should determine a man's income, and not years of service, amount of responsibility, degrees received in college, or any other basis which is not directly related to sales results. A B C D E Please rank the following criteria in what you feel to be their order of importance regarding an effective compensation plan: a. ease of administration b. flexibility to meet changing requirements c. fairness to company and salesmen d. understandable to salesmen e. incentive to salesman to perform his job requirements f . provide security of income to salesman g. expense of computation and Operation of plan Other (please specify): F. Finally, about your company: 81. 82. 83. (All data are strictly confidential. The following questions are only for the purpose of classifying data from the questionnaire so that a meaningful analysis can be made.) 1956 1961 Total number of pharmaceutical field salesmen employed end of year? .Number of new salesmen hired during year ? Number of salesmen leaving a sales job for any reason during the year? 100 1956 1961 Of these approximately what percent a). were promoted or transfered out of salesman job? b). left company voluntarily? c). left company through retirement? (1). left company for other reasons (e.g. released, forced to leave due to poor health, etc.) ? 84. Number of immediate field supervisors of salesmen, end of year? 85. Total number of "districts" (a district being defined as the administrative unit comprised of salesmen and the first echelon manager), end of year ? 86. .What was your salesmen's expense as a per- centage of sales (using the same basis of calculation for each year)? % % 87. If there was a change of percentage in your answer to the above, please comment on the principle causative factor: 88. What was your total, direct field expense as a percentage of sales (using the same basis of calculation for each year)? % % 89. If there was a change of percentage in your answer to the above, please comment on the principle causative factor: 90. Did your company keep records on the total number of pharmaceutical invoice lines? yesa no.3 yesE: not: 91. If yes, what was the total number of pharmaceutical invoice lines? 92. 94. 95. 97. 98. 99. 100. 101. (Check) Method of distribution 101 1956 Did your company record the total number of pharmaceutical orders ? 93. If yes, what were these totals? Approximately how many different pharmaceutical products are sold by your company? What percent of the total pharmaceutical sales for each year (1956 and 1961) was accounted for by the two major products of that year? % 96. What percent of the total pharmaceutical sales for 1961 was accounted for by the two major products of 1956? Total pharmaceutical sales? $ '1: What was your iiscal year pharmaceutical net profit? What was your company's total reported net profit? yesEjnoE yesE not: % % Please check which of the following methods of distribution are used by your company, and approximately what percent of the company's total pharmaceutical sales are distributed by each method: Approximate percent distributed by this method a) Direct to independent retail druggists b) Direct to physicians c) Direct to hospitals d) Direct to chain retail druggists e) Through wholesale drug houses f) Other 595959396959 p—o O Q g What is the title of your position with your company? Signed (if you wish) APPENDIX III COMPENSATION PLANS USED Obtaining accurate information on compensation plans used by ethical pharmaceutical firms proved to be more difficult than first expected. 1 This was due to two major complications which became evident in pretest interviews: (1) terminology such as bonus and commission did not have universal meanings among sales managers and thus tended to obscure as well as reveal; and (2) actual compen- sation plans in use were more complex than one would expect from reading the published literature on this topic. .Consequently, pursu- ing in depth respondents' replies during the interview was an invalu- able aid. in c0ping with these two difficulties. To understand the different methods used in compensating detail salesmen, one must first look at the problems involved in designing any sales compensation plan for an ethical pharmaceutical firm. The first problem confronting the sales executive is that of attributing sales results to the efforts of individual salesmen. The basic purchase decision in ethical pharmaceuticals is set by the physician when he prescribes a pharmaceutical item for a patient. This decision is the basic focus of all ethical pharmaceutical market- ing resear chandsales efforts. 'However, the ultimate dollar sales transaction comes when the patient purchases the prescribed pharma- ceutical and the location of this purchase may or may not be in the same salesman's territory as was the prescribing physician, This is especially true in large metropolitan areas where a person may see 102 103 his physician in the center of the city and purchase the needed pharma- ceutical at his local suburban pharmacy or vice versa. Thus, actual prescription sales within the territory may not represent a salesman's effort or effectiveness. The above problem is further aggravated by the method of distribu- tion used. If one assumes that prescription sales through retail phar- macies roughly approximate the detail salesman's effort and effectiveness, how does one atrribute sales when the pharmaceutical firm does not ship directly to retailers but instead, ship to wholesalers? The wholesaler's trade area generally is not the same as the detail salesman's territory, and without sales figures to retail pharmacies in a given territory, reliable sales figures attributable to the salesman's efforts are difficult to isolate. A third problem is that of the product. » If there is no effective substitute for a product for the treatment of a particular disease, sales will be a function of how the doctor became aware of the product and the incidence of the disease in a given salesman's territory. Is a com- mission or bonus on sales of such a product justified? While the problems are by no means limited to the three given above, the major differences in compensation can be accounted for by these three. For example, a firm with many competitive products, which sells and ships directly to all retail outlets and excludes the use of wholesalers, would be in the best position to pay individual men for individual results. The question of whether this would be accomplished by salary and merit increases or some form of sales or profit incentive is a separate question and depends upon the firm's policy in such matters. Similarly, a company which distributes through wholesalers only and which derives most of its sales from a few competitive products probably has the greatest immediate need for a compensation program which pays individual salesmen for individual performance. 104 Twenty-six of the respondents elected to use a salary plus incentive plan for compensating their detail salesmen. Contingency table analysis indicated that there was no significant relationship be- tween method of compensation and the firm's mean compensation payment. These specific methods of compensation are as follows: 1. Salary plus bonus. Of the six firms using this plan, three computed the bonus as a management-determined fraction of the firm's rate of return, which was distributed among the men as a percentage of salary. One computed the bonus as a management-determined fraction of the profitability of a district. The amount of bonus was then apportioned among the men in the district. Two firms used com- plex procedures whereby districts were given sales quotas and the bonus pool was determined by a percentage of district sales on specific products up to a specified limit. In addition, one firm gave bonuses on specific products to the individual men who exceeded a certain quota. In both cases, the district bonus was distributed by manage- ment judgment of relative performance. 2. Salary_plus bonus plus commission. Of the five firms using plans which fell in this category, four paid commissions on sales in individual territories. Of these four, one paid a length of service bonus, two gave a bonus for judged over-all performance, and one distributed wholesale sales commissions as a bonus. The fifth firm used an unusual double bonus arrangement. .First, a budgeted bonus pool for the district is apportioned among the men according to the district manager's judgment. In addition, a district sales quota is established and all sales over the quota receive a commission. This commission has a maximum earnings limit and is used as a second bonus pool which is again allocated by the district manager's judg- ment. 105 3. . Salary plus commission. Of the fifteen firms using this form of plan, ten used group commission for wholesale accounts and special metropolitan areas. Of these ten, four divided the commissions among men primarily according to management judgment. Three of the fifteen firms using a salary plus commission plan specified all commissions as group commissions. Of these three, one divided the commission by management judgment, and one had an elaborate point system which allowed men to compete against each other for shares of the group commission. To illustrate the nature of compensation programs, four typical programs are included as Exhibits 4, 5, 6 and 7. 106 EXHIBIT 4: Example of Salary Incentive Compensation Program All Detail Salesmen are compensated on a straight salary basis. Salary range for Detail Salesmen is: $6, 200 to $8, 600 per annum. The salary range of Senior Detail Salesmen is: $8,000 to $11,100 per annum. Salary reviews for all Detail Salesmen will be administered by the District Managers. Reviews take place in the first month of a calendar quarter before anniversary of employment. To attain the classification of Senior Detail Salesman, a salesman must have: 1. Been employed a minimum of 5 years as a Detail Salesman. 2. Placed in the top two-fifths of percentage of district or national quota 50% of the time for the preceding three year period (preceding six, half-year periods) or by District Manager evaluation placing him in the top 30% of the District at least 50% of the time in the immediate preceding three year period. 3. District Manager recommendation for Senior Detail Salesman classification. 4. Regional Manager's approval of the District Manager's recommendation. Notice that such a plan, on the surface, is a simple and straight- forward plan. Furthermore, it is administratively simple, can be budgeted accurately in advance, regardless of sales volume estimates, and can be kept in line with other salaries throughout the entire company. However, this is somewhat deceiving as the effective administration of salary incentives requires very sophisticated evaluation measures and personnel procedures if it is to maintain an effective incentive value for total job performance. 107 EXHIBIT 5: Example of a Compensation Program Paying a Salary Plus Commission on Particular Product Sales In this program, there is a salary paid to each Detail Salesman plus a commission on specific products. The procedure for the com- mission part of the plan is as follows: Approximately three weeks after the end of each month, each participant in the Commission Plan will receive a report called "Gross Sales By Product Classification. " This report shows the participant the month's sales for each commission product. As a quick check to see how he fared, he compares his month's sub-total with each month's commission base. His total commission base is one—half of the total net sales made by him during the previous twelve-months of all products designated as "commission products" and listed on the Commission Sales Sheet. Commission bases are adjusted when indicated because of territory changes. A new commission plan starts every April and October of the calendar year. It offers each participant an opportunity to earn extra income in return for extra effort that produces increased sales on the commission products. The commission rate is 5%. The Commission Plan pays the participant 5% ($50 for every $1000) that the participant increases the total net dollar sales of the commission products over commission base--this base having been determined by the participant's past sell- ing achievements. The Vice President--Marketing has the sole privilege of award- ing a salesman the opportunity to become a participant in the Commission Plan. The award is made only with the recommendation of the District Sales Manager and ordinarily after the salesman has established his own commission base. The percentage a salesman receives of the commission earned by a group or a Sales Team is assigned by the District-Sales Manager. It is awarded according to each individual's contribution in relation to the contribution made by the other members of the group or team during the commission period. 108 Salesmen who are Commission Plan participants and have earned a commission will receive their checks approximately three weeks after the end of a commission period. -Along with the commission check each participant will also receive a Commission Plan Summary Report. The report will show: 1. The gross sales of each commission product for the six-month period. . The total gross sales of all commission products. . Total returns and allowances on commission products. . Total net commission sales of commission products. 2 3 4 5. Total commission base. 6. New product credits. 7 . Difference between the total net sales on commission products and the commission base (NC opposite the figures means the sales were less than commission base and hence no commission has been earned). 8. The amount of commission earned (5% of the difference between the total net sales on commission products and the commission base--plus new product credits). In theory new products should not become commission products until a participant has established his own commission base on the new product (12 months' sales). However, occasionally a new product is designated a commission product before participants have been able to establish a commission base for it. In such instances, an artificial commission base is assigned the product, this being a percentage of actual sales. For instance, if a new product becomes a commission product at 100% of sales, the participant would earn 5% of the total sales of the product made during a commission period. If a new product becomes a commission product at 50% of sales the participant would earn 5% on 50% of the total sales of that product during the commission period. The total sales of products not listed as commission products are entered on the lower portion of the Commission Plan Summary Report. -Although they are not commission products on this plan they do count in total. sales and have a very important bearing on the progress of a territory. 109 Note that this program requires all the evaluation procedures of the salary incentive program, and, in addition, requires special administrative machinery to operate and evaluate the commission pro- gram. Similarly, it is quite possible that with less than highly competent management, neither the commission nor the salary portions of this program will operate effectively. 110 EXHIBIT 6: Example of Compensation Program Paying a Salary Plus Commission on Weighted Product Sales over Quota In this program, the salesman is paid a salary plus a commission on weighted sales. The weights and procedures are as follows: . I. Weighting Specialty products 1. 0 - Competitive products 0. 5 Following incentive rates will apply: Weighted Sales Per Man Incentive Rate Up to $150, 000 Total Wtd. Sales 5% on vol. over comm. base $150,000 - $200,000 44%" n n .. n $200, 000 - $250, 000 4% " " " '" " Over $250, 000 3% H H n n H II. Salary Rarie $4800 - $5400 Real salaries may be paid to $5, 400 maximum for a $36,000 base. Any salary increases given within this range would be based upon merit and would be real salary increases. . Salary increases within this range will not be ”capitalized" in higher commission bases. Minimum commission base will be $30, 000 for the men presently at $5, 100 salary with sales less than $40, 000 per man. Normally, a new man joining the company is not eligible to participate in the commission plan until after he has completed one full quarter. After he has operated for one full quarter, the new man will be entitled to whatever share of the com- mission the'District Manager feels is warranted by his pro- ductivity. -Above the minimum $36, 000 base, commissions may be capitalized in higher salaries as follows: 111 Maximum Total Salary at Compensation Salesman's Commission Commission Commission on-Weighted Wgt. Sales Base Payment 'Base Sales $30,000 $30,000 $ 000 $5,100 $5,100 40,000 36,000 200 5,400 5,600 50,000 42,000 400 5,700 6,100 60,000 48,000 600 6,000 6,600 70,000 54,000 800 6,300 7,100 80,000 60,000 1,000 6,600 7,600 90,000 66,000 1,200 6,900 8,100 100,000 72,000 1,400 7,200 8,600 Changes in commission bases for capitalization of commission into higher salary will be related to fiscal year weighted-sales. Capitalization of commission into higher salary may take place during the fiscal year providing it is at the beginning of a fiscal quarter and it is related to the past fiscal year weighted sales. ~ In no event is it permissible to "'capitalize" on current year sales increases. III. Capitalization in Group Territories Weighted sales are reduced to a per-man average. This per- man average is determined by dividing the territorial weighted sales by the number of regular salesmen charged to the group. If a territory is unassigned temporarily, it is still charged to the group. The average weighted sales per-man determine the average commission base required per-man and the average maximum salary permissible per-man. Individual salaries may vary above or below the amount-called for by the base as long as the total does not exceed the maxi- mum permissible. This provides flexibility desired to reward the better salesmen withlarger salaries. » It alsomakes it possible to divide the group commission more equitably. Replacements within the group: if an experienced man. is to be a replacement within-a group, he could be offered a salary up to the amount determined by the group's existing base. 112 IV. Inherited Commission Bases .V. . VI. Inherited commission bases will be established according to the same schedules provided for capitalization of commission to salary as shown in II. above. Normal starting salary should not exceed $5, 400 ‘(if weighted sales are $50, 000 or more). ‘However, a man may be given a higher starting salary up to $5, 700 provided his commission base is $6, 000 more than the schedule indicates. (For example, to hire an experienced salesman.) Sales in a territory are $60, 000 for a $48, 000 base (base salary $5, 400); you could with Management approval pay $5, 700 salary for a $48, 000 base. In addition to the above, a man's sales may be "capitalized" in increments of $300 per year if his sales increases so indicate. Any salesman who inherits a territory is eligible for the full salary within a five-year maximum period. Due to obsolescence of products the sales become the efforts of the work of the man who inherits the territory. , Real Salarflncr eas es Salesmen are eligible for merit increases provided the com- mission base of these salesmen is higherthan the base salary he now receives. For example: $48,000 base--$5,700 salary; for this base he can receive $6, 000. To effect such an increase, a regular salary raise form has to be completed by the District Manager, forwarded to the home office, and approved by the General Sales Manager. Introduction of New Major Specialties While the preceding plan is fair and equitable, it is, of course, impossible to accurately predict conditions in the future. Therefore, with the addition of 1_1_e_v_v major specialties, com- mission bases will be uniformly increased and/or weighted sales will be revised. Management will project a per-man dollar figure to be added to the commission base immediately upon the release of a major specialty or settthe weighting upon introduction of the new product. 113 It should be noted that this plan, while subject to the same general criticism of the salary plus commission on specific products, is con- siderably more flexible, can be arranged by weights corresponding to profit contribution per product, and emphasizes a more complete sales performance than the former program. 114 EXHIBIT 7: Example of Compensation Program‘Paying a Salary Plus a Bonus Based on- Profit of the Sales District *- A modified form of profit will be the basis for this compensation program. Compensation will be earned on the basis of "district profit, " rather than sales volume. District profit will be defined as follows: Gross sales for the district $ xxxxxx Less: Deductions from gross sales xxxx Direct selling and administrative expense xxx Direct cost of goods sold xx District Profit = $ xxxxx In order to keep all of the factors affectingl"district profit" within the control of the Marketing Division, a budgeted direct cost of goods sold figure will be used for every product and will remain fixed for the year. This will eliminate any effect of favorable or unfavorable manufacturing performance. Other expenses beyond those listed above which affect the actual profits such as product freight, distribution expense, etc. , will no__1_:_ be considered in determining "district profit. " Again, these expenses are beyond the control of the Marketing Division and, therefore, are excluded Each district will operate on a single commission rate which will be assigned on January 1, and be in effect for the entire calendar year. At the close of business in December, the district profit total, multiplied by the district commission rate, will reflect the total amount of compen- sation money earned by each district. - Each District'Manager will receive a monthly report showing the "'district profit" for the month and the year to date. - This will enable the District Manager to issue progress reports to the field. Eighty percent (80%) of the total earnings of the district will be paid in relation to the number of base shares assigned to each salesman. 'These base shares are derived by taking the average monthly salary of a sales- man'and dividing by 10. Base shares are computed-and salaries averaged at the end of the year on the basis of actual salary earnings. Consequently, salary increases can be scheduled for any time of the year. 115 Example: If, on January 1, a salesman's salary was $460 per month, and on September 1, he received an increase to $500, his salary earnings for the year would total $5, 680. This total, divided by 12 gives him an average monthly salary of $473. ~Consequently, his number of base shares for the year would be 47, since partial shares are dropped when computatigr-i-s are made. The total number of base shares in the district, divided into 80% of the total district's earnings, will determine the base share value. This base- share value, multiplied by the number of base shares held by a salesman, will determine his base share earnings. The remaining twenty percent (20%) of the total district earnings will be divided by the total performance points earned within the district to determine the in-Tz—e-ntive point value. The number of incentive points earned by a salesman will be determined by his District Manager, using an incentive evaluation form, a copy of which is attached. The incentive point value, multiplied by the number of incentive points earned by a salesman, will determine his incentive point earnings. Base share earnings are added to incentive point earnigs to arrive at the total earni_ngs of each salesman. The difference between the total earnings of the salesman and the salary paid to him during the year will be his annual bonus. ~ Of course, if the salary paid to him exceeds his total earnings, nothing will be deducted! Only one year-end determination of earnings will be made and only one year-end performance rating will be submitted to the Home Office by the District Manager. Eachman will draw from his district's earnings, griy the amount which he has earned under the Plan. Any over-payment to men who‘earnless under the Plan than they actually received in guaranteed salary, will be paid by the Company. In other words, the Company stands the loss, to a great extent, for any. sub- standard performances within the district and this'enables the above-average performers to receive more closely. what they have justly earned. . Eligibility-4AM men (this includes salesmen, special representatives, and sales supervisors) on the payroll on‘January 1, will participate fully in the Plan. .All men (whether replacements or filling new non-budgeted jobs), hiredafter January 1, will not be eligible to participate in the Plan until January 1 of the following year. Any man on the payroll on 116 January 1, who, during the year, is transferred into a new manpower or non-budgeted job, either within the same district or to another district, will _1_1_o_t participate in the Plan beyond the effective transfer date, and any incentive payment adjustments will be paid from the Sales Manager's Reserve Fund. Reserve--There will be a fixed reserve of one base share per man per district. A11 base share reserves will go to the District Reserve Fund to cover the expenses of sales contests, sales awards, etc. The number of reserve shares will be subject to change each year. Base Shares--The number of base shares assigned to a man will be in direct proportion to his salary up to the maximum salary level. .There will not be an increase in base shares without a corresponding increase in guaranteed salary. Guaranteed Salary--Guaranteed salary increases will follow the schedule listed below. Such increases will be based on performance and the recommendation of the District Manager and can be scheduled for any time during the year. Guaranteed SalarLSteRSchedule: $400 425 460 500 550 600 650 Terminations--Any salesman terminating during the course of a year will be rated by his District Manager on the date of termination and this performance rating will be forwarded to the Home Office along with the usual termination file. At year-end, the salesman's base shares and his incentive shares will be computed on a pro rata basis. If his total earned compensation, as computed at year end, exceeds his salary for the time employed, he will be paid accordingly. .Such a payoff will be made at year end when they are made to everyone participating in the - Plan. The difference between budgeted salaries (which are used to determine the commission rate) and actual salaries paid, resulting from termin- ations and replacements, etc. , will be deducted from the total earned compensation of the district prior to computing the individual payoffs. In addition, a pro rata portion of the amount of money budgeted to cover the incentive share of the terminating or transferring salesman (this amount is determined each year in the Home Office when the commission rates are being established) will be deducted from the total earned compen- » sation of the district prior to making the individual computations. 117 The above differences, when withdrawn, will revert to the Sales Manager's Reserve Fund to the extent not offset by overdraws. Unanticipated Product Shortafl--Should an unanticipated product short- age occur during the year, the Sales Manager will promptly inform the District Managers of these shortages, so that they can shift sales emphasis to other products. Thus, when sales do not approach expected levels in one product area, the difference can be made up to a great extent in other product areas. Epidemics, Unanticipated New Products, Eta—“The right must always be reserved to make special provisions, when heavy sales of a non-com- petitive item or unanticipated new products seem to indicate that this is the fair thing to do. Generally speaking, however, it is expected such situmns will be rare and it is desirable that any such provisions be announced on or before January 1, when the Plan for the current year goes into effect. ‘ Note that this plan is extremely flexible, emphasizes the total job and is similar to the salary incentive plan (Exhibit 4) above in that it requires very sophisticated evaluation measures and personnel pro- cedures. APPENDIX IV DETAIL SALESMEN'S JOB DESCRIPTION A job description has many uses, some of which are: (1) an aid in selecting prospective employees; (2) an aid in designing and operating the employee training program; (3) a basis for designing compensation programs; and (4) a basis for developing evaluation procedures. While the above listing does not exhaust the number of uses of a job descrip- tion, they are the four main uses of operational importance. All four are related directly to the personnel management functions of sales management. And, as one function of personnel management procedures is to improve precision in the four areas listed above, one might plaus- ibly argue that the completeness and specificity of the job descriptionis an index of management precision. As a working document, the job description should include the following essentials: (l) a brief synopsis of the job and its position in the organization; (2) a specification of all job objectives, and the duties, authorities and methods to be used in achieving these objectives; and (3) a specification of reSponsibilities for conduct, company material, etc. ~ A fourth essential item, although not always included as part of the job description, is the standards of performance section. -An analysis of detail salesmen's job descriptions revealed that only one firm adequately fulfilled all four essentials for a job descrip- tion. Four firms fulfilled three of the four requirements, but fifteen firms fulfilled only two or less of the requirements. , Finally, eight firms did not use a job description, although one firm claimed to have a job description which was not given to (the men. .Exhibits 8 through 10 are specimen copies of the least complete job description used by a firm in the sample, an incomplete yet typical 118 119 job description, and the most complete job'description used by a sample firm. vFor the sake of clarity, Exhibits 8 through 10 are job'descrip- tions without standards of performance and Exhibit 11 is a specimen copy of a set of standards of performance. In all exhibits, the names, and items which would identify firms, have been omitted. 120 EXHIBIT 8: Specimen of the Least Complete Job Description in the Sample Major Responsibility To produce the maximum amount of profitable sales of company products in his assinged territory. Report to District Sales Manager Responsibilities and Functions 10 Plan and organize sales effort in assigned territory in keep- ing with the company policy. Maintains "live" territory records as directed by company. Be completely familiar with the pharmaceutical market in his assigned territory. Establish a call pattern on selected drug accounts, hospitals, clinics, physicians, physician supply houses and other potential customers. Be completely familiar with all pharmaceutical line products and capable of presenting a motivating sales presentation to potential users. Be proficient in the application of professional sales techniques in selling the company. and company products. Develop a sound relationship with physicians and customers; handle complaints to satisfaction of the customer and, the company; maintain customers in good credit standing. -Keep all equipment and supplies issued by the company in good condition. - Keep informed concerning competitive products, prices and policies, forwarding pertinent facts to the District Sales Manager. 10. 11,. 12. 13.. . Attend conventions as directed by District Sales Manager. 14.- 121 Cooperate with distribution services to assure efficient service to our customers. Control expenses within budgets assigned. Establish inventory control with customers to keep return goods to a minimum, particularly dated products. Schedule hospital exhibits routinely in assigned hospitals. Perform such other duties as directed by the District Sales Manager. 122 » EXHIBIT 9: Specimen of Job Description Typical of the Industry Primary Responsibility: The Detail Salesman is responsible for the specification and sale of company products and the enhancement of the general company image and franchise to the medical and drug trade audiences in his territory. Reports to: District Sales Manager Supervises: No one Major Functions: Within the limits of his approved operating program and the policies and procedures of the Division, the Detail Salesman is responsible for the fulfillment of the duties set forth below. 1. Develop and recommend both short and long-range, specific selling objectives for his territory. 2. Develop and recommend an itinerary for the selling period in conformance with the approved sales program, which will assure the most productive sales coverage of the territory. 3. Plan, at the close of each working day, the next day's work schedule, in keeping with the immediate selling conditions of the territory and the approved itinerary and selling schedule forthe promotional period. 4. Carry out the approved selling plans by: a.. Selling to and throughldrug trade outlets, b. Creating—specifications through physicians, c. Selling to and through assigned hospital personnel. 10. 11.. 12. 13. 123 Maintain records of all business activities to assure the avail- ability of an accurate history of promotional efforts. Report all business activity through specified reporting procedure. Maintain an adequate inventory: of literature, samples, and trade packages for the selling demands of the territory. Maintain professional goodwill by appropriate personal example and by the use of an approved amount of entertainment of the call-list audience. Attend company sales meetings and medical andtr‘ade con- ventions as assigned by District Sales Manager. .Keep informed on current methods and practices of pharma- ceutical selling by continual study of promotional and sales literature and by attendance at prescribed meetings and seminars. Keep informed of competitive practices within the territory and report these findings to District Sales Manager. Assume responsibility for the effective expenditure of funds and use of materials and equipment as provided for the selling period. Assume such other responsibilities as assigned by District Sales Manager. 124 EXHIBIT 10: Specimen of the Most Complete Job Description ExCluding Standards of Performance The Detail Salesman's objective shall be to sell company products to physicians, to retail pharmacies, and to hospital pharmacies in accord- ance with the company marketing policy. Under the supervision of his District Sales Manager, the: Detail» Sales- man shall have authority to take action consistent with company policies as outlined in the Sales Manual and other company publications and as directed by company management. I. II. A. General The Detail Salesman shall have complete knowledge of the company line and shall keep up to date at all times on product information. The Detail Salesman shall also keep informed‘about competi- tor 5' products and promotional methods and shall report significant developments to the District Sales Manager. The Detail Salesman shall keep abreast of medical and pharmaceutical information through current pharmaceutical and medical journals. Physician The Detail Salesman shall maintain records giving the follow- ing information about each physician the salesman details: l..Specia1ty (educationand training experience) 2.. Special interests 3., Best time to call 4. Hospital connections and degree of influence at hospitals 5. Products he uses in his office and the hospital; and products he keeps in his bag. 6. 7. 125 Medication he prescribe s . Community and professional prestige The Detail Salesman shall develop and maintain good relations with the following individuals associated with the physician: (1) secretary; (2) nurse; (3) receptionist;'(4) laboratory tech- nician; (5) elevator operator and other building personnel whose knowledge or assistance may facilitate his interviews. The Detail Salesman shall prepare for his detail calls by: 1 .. Planning a daily schedule for physician calls, based on the detail quota and with thought given to the best time for calling on each physician. Planning what products to discuss, assembling materials for this purpose, and organizing his presentation--inkeeping with the company's promotion schedule and the individual interests of the physicians. The Detail Interview 1. The Detail Salesman shall (1) be considerate of the physician‘s time, giving particular attention to an appropriate closing of the interview; (2) maintain flexibility in the inter- view in order to take advantage of the physician's interests; and (3) conduct himself in a manner that will enhance the physician's confidence in the salesman and the physician's respect for the company. The purpose of the interview shall be to influence the physician to (1) prescribe company products to patients, 1 (2) specify company products in the hospital; and (3) order company products for his office and house-call use. The Details Salesman shall present the following product information to the physician, employing whatever material will aid his purpose: a.- Name of product ‘5. Medical indications and contraindications III. 126 c. Advantages, including palatability and patient- acceptance. d. Dosage and methods of administration e. Appearance, strengths, and package sizes offered f. Price range g- Storage and stability h. Availability 4. When requested to do so, the Detail Salesman shall take inventory for the physician and make adjustments for out- dated items. The Retail Pharmacy A. The Detail Salesman shall develop a thorough knowledge of the retail pharmacy owner's interests, and his prestige with the medical profession. He shall also become acquainted with, and maintain friendly relationships with, all retail pharmacy personnel. The Detail Salesman shall develop a knowledge of the pre- scribing habits of the physicians in the area of the retail pharmacy. The Detail Salesman shall prepare and plan ahead for his calls by: 1. Planning for sales presentations in line with his detail efforts with physicians, and with proper emphasis on special sales promotion efforts. 2. Maintaining up-to-date forms and materials for use at the time of the call--including product-promotion aids which may serve the individual retail pharmacy. The Retail Pharmacy Call Responsibilities of the Detail Salesman shall be to: 1. Detail and sell the pharmacy on products scheduled for promotion. IV. 127 2. Obtain orders for druggists' and physicians' preference item merchandise. 3. Determine in connection with each sale the pharmacist's preference of wholesale distributor. 4. Sell the "Company Policy. " 5. Offer the pharmacist appropriate product-promotion aids. 6. Keep the Comjany Catalog up to date. 7. Check dated merchandise. ‘8'. Handle "returned" merchandise. 9. Handle therapeutic and product complaints. 10. Make price adjustments. 11. Check stocks of company merchandise when possible. '12. Be alert to the proper protection of company prices and trademarks . The Hosfltal A. The Detail Salesman shall call regularly on the hospital pharmacy--and on the purchasing agent, chiefs of staff and services, and administrator or superintendent when desir- able. If a hospital has a director of education, this man shall be called on regularly. In addition, the Detail Salesman shall make regular calls on hospital medical personnel, including pathologist, radiologist, anesthesiologist, etc. Group or individual contacts with residents and interns shall be made. Calls on the directoress of nurses and on supervisors of the surgical, obstetrical, medical, pediatric, emergency, and dietetics departments shall also be made. 128 The Detail Salesman shall comply with all hospital rules and regulations in his hospital contacts, giving special attention to company directives regarding'Veterans Administration and other Government-supported hospitals. The Detail Salesman shall develop a knowledge of the hospital's product needs in keeping with the types of patients treated, as well as a knowledge of the hospital's method of handling prescriptions and distributing medicinals to patients. The Detail Salesman shall develop an appreciation of the internal working relationships of hospitals. The Detail Salesman shall prepare and plan ahead for the calls, considering the time of contact, the product information to be presented, and the provision of aids and promotional materials. Calls on Hospital Pharmacy (or Purchasing Agent, Etc.) 1. Such calls shall follow the lines of the retail pharmacy call, with great emphasis placed on bulk and contact sales. 2. The Detail Salesman shall distribute promotion material and blotters at appropriate locations in hospitals when permitted. 3. The Detail Salesman shall arrange for hospital displays at appropriate and convenient times. Calls on Hospital Medical Personnel 1.- In calling on specialized personnel, such as the pathologist, the individual physician's field of interest shall be given major attention. 2. In contacts with residents and interns, special and regular promotion materials shall be used. 3. The Detail Salesman shall be continually alert to possibili- ties for clinical research on company products by physicians in hospitals . Calls on Hospital Nursing Personnel VI. 129 1. The Detail Salesman shall provide nursing personnel with product information and shall present any avail- able aids to the nursing and/or teaching staff. 2. The Detail Salesman shall make himself available for appearances before nursing or student groups. .. Wholesale Distributors As signed to Salesman A. If a salesman is assigned specific responsibility for a-w-hole- sale distributor, the salesman shall advise the distributor and direct his efforts in order that mutual benefit may result to the distributor and to the company. This responsibility shall be carried out in accordance with the policies regarding wholesale responsibility. The Detail Salesman shall maintain contacts with the whole— sale house personnel, especially the buyer, providing infor- mation on company products, services, and policies. rHe shall influence the buyer to maintain adequate and properly balanced stocks of company merchandise. The Detail Salesman shall be the connecting link between the wholesale distributor and other company salesmen in the area who do not have assigned responsibility for a wholesale distributor. Management of Territory In order to accomplish his job successfully, it is essential that the Detail Salesman perform certain other duties and meet certain other requirements. A. The Detail Salesman shall manage his territory in conformance with the ideals and objectives of the company. Through personal development, the salesman shall strive for individual stature in his community which is in keeping with his position as "The Company" in his territory. The Detail Salesman shall be alert for opportunities within his territory to further the company's interests as outlined below. 130 1. Obtain opening stock orders. 2. Make contacts with professional and trade associations, . medical and pharmacy schools assigned to him, nurses" organizations, civic groups, etc. 3. Provide emergency service to physicians, retail pharma- cies, and hospitals. 4. Arrange for student and professional guests to visit home office andmanufacturing facilities in accordance with the company's current policies. 5. Deve10p a co-operative relationship with wholesale dis- tributors' salesmen (even though the Detail Salesman may have no assigned wholesale dist ributor responsibility); and supply them with specific information which will aid them in selling company products. 6. Obtain information through physicians and other professional people in the territory which may provide leads for company research--and also, which will provide opportuni- ties for clinical trial of items. 7. Submit ideas for promOtional materials for new products. 8. Stimulate interest in likely candidates for employment with the company (either as salesman or in other capacities). The Detail Salesman shall complete necessary paper work promptly and accurately. This shall include correspondence with the home and district offices, required company forms (with particular attention to the prompt reporting of terri- torial changes), and requested surveys. The Detail Salesman shall prepare assignments for, andacon- .structively participate in, district meetings and home office sales schools; also, wholesale distributor meetings when requested. The Detail Salesman shall attend assigned pharmaceutical and medical meetings. G. 131 The Detail Salesman shall maintain. satisfactory. relation- . ships with'(1) other company salesmen, - (2) his District Sales 'Manager, and (3) home-office personnel. 1.. He shall co-ordinate his activities with those of all company salesmen in his area and co-operate with» such salesmen to the benefit of all concerned. 2- He shall be accountable to the District Sales Manager-for the interpretation and fulfillment of the responsibilities and authority of his position. 3.- He shall request specialized information from the home- office on various problems--in accordance with the Sales Manual and as directed by the District. Sales Manager. And he shall respond promptly and fully to requests made by the home-office. 132 EXHIBIT 11: Specimen of Standards of Performance Section of a Job Description General Respon sibilitie s A detail salesman is responsible for the management and deve10pment of his territory. His primary purpose is to obtain a major share of the available markets for the division's products in his assigned area. He is accountable for conducting himself in a manner which will in- crease the prestige of the company with members of the medical and allied professions as well as the general public in his community. Function I. SALES RESULTS 1. Profit Plan Objective Equals or exceeds realistic Profit ’Plan Objectives 2.. Promoted Specialty Products Shows continuing progress on direct sales of promoted specialty products in accordance with the Division's marketing plans and objectives 3 . Sales Incentive 'Levels Consistently exceeds sales volume required to earn incentive payments on any sales incentive program in effect. - II. . CALL .ACTIVITIES 1. -Physician Calls a. Regularly contacts those physicians in his territory representing the greatest potential to the company. Total sales results as shown on salesmen's monthly sales report. When monthly tabulated reports of direct sales of promoted products show satisfactory progress. - When sales justify base salary paid and incentive payments are earned. Meets or exceeds assigned phy- sician“ call objectives on those physicians representing the greatest potential to the company. 133 b.) Provides complete and accurate information on products scheduled for promotion in accord- ance with profit plan objectives. c. .Solicits specification and use of promoted products. 2.- Retail Outlet Calls Services recognized retail outlets in his territory. Solicits orders on a direct basis for sufficient quantities of the division's products to assure optimal distribution. 3 . Hospital Calls a- Services recognized hospitals in his territory, on a planned call basis. Solicits direct orders for sufficient quantities of the division's products having hospital usage to assure optimal distribution. b... Contacts house staff and ancillary personnel to furnish complete and accurate information on promoted hospital products. 4.. Government Agency Calls Services city, county, state, and federal agencies as required to assure optimal distribution of the division's products. III. TERRITORIAL . OPERATIONS 1 . - Organization To be knowledgeable of the existing potential in his territory. To stay alert for any changes altering the The degree of believability of presentation'as shown by physician trial. When tabulations of promoted products show satisfactory "progress. When distribution of the ‘ division products is adequate to meet the demandas required. When calls are made in accord- ance with the plan and distri- bution of the division's products having hospital usage is adequate to meet the demand as required. .When tabulations of promoted hospital products show, satis- factory progress. When sales of the division's products to these agencies, show continuing progress. When reports are made on such - conditions and approved changes initiated. 134 existing potential and to promptly take- advantage of such changes. 2. -P.1anning a.. Physician Call Planning 1.. Selectively plans for each physician call based upon physicians' prescribing preference. 2. Personalizes each presen- tation. 3. Allocates a minimum of 75% of working time to contacting those physicians representing the greatest potential to the company in his territory. b. Outlet Call Planning Plans to regularly contact those outlets in his territory which represent the greatest potential to the company. c. Hospital Call Planning Allocates sufficient time to hospital activities. . IV. TERRITORIAL (MANAGEMENT . 1.-Controls Studies, analyzes and understands all sales and progress reports pertaining to his activities. ~ When his District Manager has received notification of‘advance planning and observes-plans being followed. WhenrDistrict Manager observes personalized presentations while accompanying associate. When reports of physiciancalls shows optimal coverage of those physicians representing the greatest potential to the company. When outlet calls do not exceed more than 25% of total working time. . When he—submitsa specific plan for working "products having hospital usage where promotional material is available. Improves in those areas where improvement. is indicated by sales and/orprogress reports. 135 2.. Territorial Records Keeps current and up-to-date records required for effective territorial management as specified by his District Manager. When inspection by his District Manager shows all records required are complete and current. 3. Surveys, Rgports, Orders, and Correspondence Participates in special field surveys as requested. Prepares accurately and completely, reports, orders, and correspondence. ~ Forwards these promptly. 4. Trade and Public Relations Handles situations which may arise in his territory in a manner which contributes to the prestige of the company. 5. Special Promotional Activities Makes full use of special programs, exhibits, films, etc., in his territory. 6. Collections Assists branch operations in main- taining the accounts in his territory within established credit terms. 7 . Sales Expenses Handles the following in strict aCcordance with company policy: a. personal expenses When his handling of reports orders, andcorrespondence does not cause unnecessary work for others. When he has sufficient knowledge of and can skillfully explain company policies and philosophy to the medical profession, drug trade and public in his territory. The frequency with which he takes advantage of opportunities afforded by special programs, exhibits, etc. Gives attention to past-due accounts in his territory as required. a.. When personal expenses do not exceed standard allowances. 136 b. leased car expenses c. samples and promotional literature d. sales equipment V . C OMMUNICAT IONS l. Keeps management informed on important company, trade, and business conditions encountered in his territory. 2. Keeps management informed on significant competitive activities in his territory. Regularly reports on the acceptance of promotional material, media, and company policies by members of the medical and allied professions. VI. COMPANY POLIC Y Understands and follows all company policies and governmental regulations pertaining to company business. . VII. PERSONAL .Conducts himself and manages his activities in a manner which creates prestige for the company. His appearance and manner are a credit to himself and the company b. When leased car expenses as shown are in line with lease- car expenses standards. c. When disbursement of samples and promotional literature are made strictly in accord with current government regu- lations and company policy. d. When sales equipment shows only normal wear. When the information forwarded is accurate and complete. When he routinely submits accur- ate reliable market reports from the field. When his honesty and integrity are above question. The absence of unfavorable comments from his area. Maintains an appearance and conduct that will increase his acc eptability . 137 Demonstrates a loyal, cooperative, dependable attitude toward his companyand its management. Pursues a course in self-improvement which will increase his ability to express his ideas. Promptly follows instructions and suggestions. Belongs to ~ speaking improve- ment clubs. .Studies, reads, andrpractices for self- improvement. APPENDIX V PERFORMANCE EVALUATION PR OC EDUR ES The questionnaire, as well as the interview procedure, attempted to identify evaluation criteria for two separate portions of the total evaluation process. The first was with regard to criteria with which the manager evaluated experienced men for the purpose of determining compensation. The second was with regard to criteria involved in a formal performance evaluation which is discussed with the detail sales- man. It should be noted that the former evaluation must be made some time, whether formally or informally, as, essentially, it involves the question: "Is the firm getting its money's worth from detailman X?" The second, or latter, evaluation is different in that it presupposes several important items, two of which are: (1) there is some value in setting things down for the record and discussing them; and (2) there is some measure or estimate of total job performance. Table 23 shows the replies of sales managers at the policy level regarding the criteria used to evaluate the detail salesman for the purpose of determining compensation. Table 24 is a tabulation of what sales managers feel are the most important criteria for evaluating overall performance. ~ Interestingly enough, regarding overall performance evaluation and discussion of rating with the man, in 1956 only eleven of the twenty-eight firms had a formal program while in 1962, twenty-one of the firms had a formal program. i In addition to identifying the criteria used in performance evalu- ation, copies of the forms and procedures used in evaluation were sought 138 139 from firms using formal programs. Specimen copies forwarded by sample respondents varied widely in their completeness and pre- cision of measurement. Exhibit 12 illustrates an evaluation form oriented toward total performance and development. The general style of form is used by five of the firms in the industry and is apparently used as a field training device by several firms. Notice that the various measures are subjectivelyweighted by the person doing the evaluating, and the strongest criterion is the comparison of the man to past performance in general. ~Exhibit 13, on the other hand, illustrates a more concise and objective method of evaluation which focuses on specific sales andjob performance criteria. However, this method ignores the very important topics of improvement, development potential, behavior traits and quality of the detail selling process. To some extent, this method of evaluation is more adaptable to discussion with the salesmanin that the criteria used are present, obvious, and measur- able, while this is not the case for many of the criteria in the former method. However, the latter method of evaluation covers much-less of the job than the former. 140 m N H H m A smouo>oo :mU e v N H m o finnfimummxw oosmguotom N m h m w H mEouHhmgoflumano .3050 S o m N m N mgofi hmfiaoflumm mo mofimm m N o N w A: mofimm 1308 so .3050, ma N. e m m S modmm H.308 acomohmr 0mm: “cowosnm 0mg “communm a ems sumo 8? o cantons: 5 pcooom «counomg “no: "mm £033.30 05 wifixcmm mmwmcmg mofimm mo Hones—Z GofluofiuU comudmcomEoU mo Gofiumawguouofl mdfipumwom sofimofimm don—0Q oum3~m>mm ou pomD .mEofiuO mo mmdgdmm .mnommsmz moadm .MN 2an 141 Table 24. .Criteria Used in Formal Evaluations a m Number of Firms Criterion Using at Present Sales Results ........ . . . . . . 15 ‘Attitude...... ...... 6 .Personal Progress . . . ..... . . . 5 Performance . . . ...... . . . . . 4 Product Knowledge ..... . . . . . . 4 Territory Coverage. . . . ....... 3 Sales Ability ............. . 3 Planning Ability ..... . . . . . . . . 2 Strong Points . . ........... . 2 Needed Deve10pment . . . . . . . . . . 2 JobKnowledge............. 1 Meeting Call Quota ........... 1 -Filing Reports . . ....... . . . . 1 Observed Behavior ..... . . . . . . 1 Personal Potential ....... . . . . 1 Creative Ability. . ...... . . . . . 1 JMotivation................ 1 Goal Achievement. . . . . . . . . . . . 1 142 EXHIBIT 12: Detail Salesman's EvaluationiProcedure Focusing on Total Performance andvDevelopment INSTRUCTIONS FOR THE DIVISION MANAGER The purpose of this form is to help you evaluate the strengths and weaknesses of your men. It is a tool for effective supervision and train- ing, not for disciplining.“ Improvement in performance canlbe achieved only through fair appraisal and effective training. This form will help you determine what additional training your men need. To complete this form-- 1. Review the demonstrated performance of the salesman for whom this form is being completed. 2. Compare what he has done with what is required of him. 3. In the space following each question, jot down the answer which best describes his performance in relation to the question. 4- Summarize his strengths and weaknesses. 5. Outline a program for improving his performance. . Salesmen want to know how well they are doing their jobs and how they can improve. This evaluation form gives you an excellent oppor- tunity to counsel with each of your men on his performance. , After each Supervisory visit you do some counseling, and once a year it is worth- while to sit down with a man and review with him his total performance. Below are a few suggestions for conducting this discussion: 1. Review all the facts which entered into your evaluation. 2. Organize a plan for conducting the discussion. 3. Arrange a time when neither of you is under a strain and hold the interview where you will not be interrupted. The morning is usually the best time. 4. Put the salesman at ease before starting the discussion. 10. 143 . Do not show this form to the man being counseled. - Make notes on the points to be discussed and keep this outline in front of you. Do not discuss past mistakes in an overly critical manner. Talk about future progress. Counsel with the man each time you work with him. Bring up one new point during each interview. Avoid discussing too many areas requiring improvement at one time. Give him an opportunity to challenge any evaluation. Change your opinion if he offers sufficient proof to warrant a change. Keep your discussion friendly but impersonal. .Do not put the man on the defensive. End on a positive note. Let him know that the training dis- cussed is an assignment he is expected to complete. Remember that you are not discussing a man. A You are discussing his performance. If you critic-He, it is the man's performance that has slipped, not the man. He can look more objectively at his work than at himself. JOB KNOWLEDGE Describe the man's performance with respect to application of product information and company policies; and the degree to which he is well informed on pharmacology, physiology, diagnostics, therapeutics, competitive products, competitors' activities and market conditions in his area. Number of Supervisory Visits in Past Year 1.. What are his strongpoints? A. B. Physician Detailing Institutional Detailing (1) Ho spital (2) School (3) Industrial 144 C. .Retail Detailing D. Distribution 2. What are his weaknesses? A. Physician Detailing B. Institutional Detailing (1) Hospital - (2) School (3) Industrial C . R etail Detailing D. Distribution SALESMANSHIP Describe the man's performance with respect to his salesmanship ability. This should include his initiative and creativeness in the use of planned sales presentations, visuals and samples and his ability to talk in terms of the prospect's interest, overcome resistance and close the sale. History of Sales Volume History of Sales Budget Variation 19 $ 19 19 $ 19 $ $ 19 $ 19 $ $ National Standing District Standing 19 19 19 19 19 19 19 19 145 'Selling‘ Expenses: Budget Actual Variation Travel $ $ $ Samples $ $ $ Medical Meetings 55 $ $ Sales Meetings $ $ $ TOTAL $ $ $ Ratio of Expenses to Sales 1. What are his strong points? 2. What are his weaknesses? 3. .Productivity? a.. Physician b. Drug store c. Hospital d.~ Miscellaneous e. TOTAL TERRITORY MANAGEMENT Describe the man's short and long range planning, the degree to which he has adequate distribution, his territory records, the condition of his equipment, his routing and his promptness and accuracy in handling reports and correspondence. In short, consider how well he operates his territory in a business-like fashion. 146 Average No. Daily PhysicianCalls Average No. Daily Hospital Calls Average No. .Daily Retail Drug Calls Average No. Daily Total Calls Number of HOSpital Displays Product Film‘Showings Condition of Company Property Automobile Cost per mile 1. Planning a. Master routing in advance. b. Adherence to master routing. c. Daily routing in advance. d. Adherence to daily routing. e. - For good distribution at retail. f .. For good distribution at wholesale. g. How well does he plan without close supervision? 2.- Organizing a. Office at home. b.~ Records at home. c. Literature and samples in his office. d. Literature and samples in his automobile. 3. .Controlling a. Are reports on time and accurate? b. a Communication »- Quality c. Communication - Quantity PERSONALITY TRAITS AND PHYSICAL APPEARANCE ,Describe the man's personality; i. e. , what'kind of a person is he. Describe his ability to get along with people and the degree to which he is a team worker. ‘What do customers and other members of thecompany think of him? Describe his physical appearance and health. -In particular, consider his motivation for his: work, his drive, self-reliance, initiative, leadership qualities and ambitions. 147 1., Personality Traits a. b. P. Gets along with others. Team worker. . Motivation. . Morale. C ooperativene s s . . Enthusiasm. . Takes criticism. . Aggressiveness. . Leadership. Drive. . Open-mindedness. . Hard worker. . Self-reliant. Interest in work. . Judgment as pertains to job. Punc tuality. 2 ,, Physical Appearanc e a. b.' C. General physical. Neatness. Health - Days absent. 148 “SUMMARY OF APPRAISAL 1. Considering all aspects of the man-~-his performance, personal qualities, application to the job, abilities, etc. --what are his: a. Outstanding abilities or qualifications? b. Areas requiring improvement or hindering his performance? 2. In your judgment, what is this man's potential? 3. What have you, done to improve his performance? 4. What further action, training or experience is needed? What specific assignments should be made? (List in order of performance.) DISCUSSION WITH THE INDIVIDUAL Discuss the suggested program for improvement with the salesman. Come to an agreement on specific assignments and dates these'assign- ments are to be completed. Counsel with the man on one point at a time. Counsel with him each time you work with him. Record in the space below the results you feel were accomplished during your interview. Keep this original in your possession but send a copy of any remarks made to the home office so they can be transcribed to the office copy. 149 EXHIBIT 13: A Detail Salesman's Evaluation-Procedure Focusing on-Specific Sales and Job Performance Criteria Evaluations of the Detail Salesman by the District Sales Manager will be on a semiannual basis and payments based on these evaluations. The relationship of sales performance to job performance is: 75% sales performance + 25% job performance SALES PERFORMANCE - 75% Sales performance will be scored in the following classes of trade: 1. Retail Sales Maximum a. Detailed Promotion Products 48 points b.- Other Major Products 19 Eints Total Retail Maximum 67 points 11. Hospital Sales - Total Hospital maximum 5 points III. Government Sales - Total Government maximum __3_ points Sales Performance - Total maximum 75 points The report of product sales is the source of the necessary statis- tical information for evaluation in the Retail, Hospital and Government classification. 1. Retail Sales Referring to the report of product sales under retail, note the upper section is grouped and shows the total dollar sales of this group- ing as well as the objective and the percent of variance (above or below objective). This grouping represents the products being actively pro- moted during the six-month period and in most cases represents nearly 50% of the total territorial, district and regional volumes. 150 A territorial evaluation is determined by comparing the percent of variance against objective in the particular territory with the percent of variance in the man's own district (territorial achievement vs. district achievement). Points are awarded (48 or less) according to the achieve- ment in this retail category. The other portion of the Retail Sales Evaluation (19 maximum points) is determined by comparing the territorial performance against district performance as reported on the lower portion of the report under"'Other Major Products. " Again the percent of variance against sales objective is the basis of comparison. Points are awarded to a maximum of 19 points. The sum of the points earned for these two categories is the total evaluation points awarded for the retail sales category. 11. Hospital Sales The report of product sales is again utilized. Under '"Hospital, " compare the percent of variance (total hospital sales vs. sales objective) with the percent of variance of your own district achievement. This cate- gory will be awarded a maximum number of points, either 5 or 3, depend- ing on sales potential and, of course, sales objective. 7 Territories with smaller objectives and smaller sales potential will be rated at a 3 point maximum. Territories with no accounts will, of course, be rated 0 (no evaluation). Unused-~not unearned--hospital points due to small volume or no sales will be shifted to retail points credits. 111. Government Sales This category will be evaluated on the same basis as hospital sales excepting that the maximum points to be awarded is to be 3 points. As with the hospital ratings, a declining value is placed on small sales potential territories or on territories without government sales (3, 2, or 0). Again the unused points normally allotted to this category are to be shifted to retail point credits in the same manner as for hospital points. . JOB PERFORMANCE - 25% As previously stated, the "Job Performance" section is scored up to 25 points maximumin the total evaluation, - "Sales Performance" representing a total of 75 possible points. 151 During this present period, a new procedure for evaluating "Job Performance" is being introduced. . By directing total effort toward these goals the company will more nearly approach acceptable perform- ance in these important phases of the over-all work program. - "Job Performance" will be rated as follows: Maximum 1. Maintaining minimum 60/40 call ratio 60% MD calls to 40% Trade calls 5 points 11. Maintaining 6 or more calls per year on "A" doctors (3 times in 6 months) 5 points 111. Adherence to detailing program (product emphasis) 5 points IV. Attention to Directives (all types) with particular emphasis on District Sales Manager assignments. , Include appraisal of absenteeism. 10 points Job Performance - Total Maximum 25 points In appraising the number of points to be assigned in the several categories, by reference to the reports mentioned, an average of the over-all district performance will be the standard of comparison. In arriving at a fair average, the District Manager will scrutinize the entire report for the general pattern. -One should not attempt to hit an average by dividing the total effort by the number of men in a district. One or two top-heavy performers or one or two extremely low per- formers would easily make the averages meaningless. .As the procedure indicates, the total evaluation of the individual representative represents a detailed examination into the sales per- formance and over-all job performance of each man on the sales team. 152 DETAIL SALESMENS' SEMI-ANNUAL EVALUATION. REVIEW Name Territory NC. District Date Region Date of Employment Period Covered: From To SALES EFFECTIVENESS Retail Detailed Retail Promotion Other Major Products Products Hospital w Government Total Points j Based on variations from objectives. ‘Rating Scale: As described by Regional Manager District Averages Rep' 3 Averages JOB PERFORMANCE Maximum 1 Points “Rating 1. Allocation of Time Profes sional. vs . T rade 2. ~Physician Call Frequency 3 . Product Emphasis 4. Attention to Directive Total Job Performance 25 District Sales Manager APPENDIX VI C OMPENSAT ION PAYMENT SURVEY Obtaining accurate compensation information proved to be more difficult than expected. The first, or pretest, attempt used the following format: 38. Please indicate the number (or percentage of total sales force) of full-time salesmen earning a total yearly compensation of: (Please use W-2 form totals from company tax records.) No. of Salesmen No. of Salesmen Total Compensation (or percent) (or percent) $ 3,000 - $ 4,999 5, 000 - 6, 999 7, 000 - 8, 999 9, 000 - 10, 999 11,000 - 12,999 13,000 - 14,999 23, 000 and over However, this proved to be beyond the limits of cooperation as most firms did not collect their data in this manner. Thus, it was necessary to revise procedure for obtaining this data. - The final questionnaire used the following question to obtain compensation pay- ment data: 153 154 33. Regarding the total number of full-time pharmaceutical salesmen employed by your company, please estimate as accurately as possible the following information: ___1_95_6_ 1961 What amount of money did the average man in the highest paid 10% of the sales force earn during the year? What amount of money. did the averaje man in the lowest paid 10% of the sales force earn during the year? What was the average amount earned per man for the total sales force during the year? Even this question was a difficult one. However, the question was left with the sales manager to be forwarded to the appropriate accounting center, whether sales, payroll or general. From the figures obtained, it is easy to compute the mean pay- ment of ethical pharmaceutical firms. This is the sum of the overall average payments for a given year divided by the number of firms. Similar calculations can be made for the highest and lowest 10% of detail salesmen. -Note that once the foregoing is accomplished, it says nothing about the average income of detail salesmen, as this can only be estimated by weighting the figures by the number of salesmen in the firm. A For example, take two firms, A and B, with A paying an average of $8, 000 per salesman, and B paying $6, 000. If A has 1000 detail salesman and B has 100, then the mean payment of a firm would be $7, 000 and the average detail sale sman's income would be calculated as follows: 155 $8, 000 x 1000 salesmen = $8, 000, 000 6, 000 x 100 salesmen = 600, 000 $8,600,000 Average detail salesman's income = 33816236000 = $7. 817.00 Similarly, the weighting process for the top 10% of detail salesmen is to take the figure given as the average payment to the top 10% and multiply it by one-tenth of the sales force (e. g.: 2 $10, 000 x 33952- = $722, 000); sum the figures obtained in this manner and divide by the sum of the one-tenth of sales force figures. The estimates yielded have been shown in Chapter III,‘ Table 7 on page 26. APPENDIX VII INDUSTRY SALES AND PROFITS As cooperation was almost non-existent from sample respondents on the question of profits, and sales could only be obtained by index for many of the firms, secondary sources were the only available esti- mates of industry figures. Probably the most valid industry figures, regarding ethical pharmaceuticals, are shown in Tables 8 and 9 of Chapter III.1 Caution should be exercised, however, as a number of the firms included in obtaining the data are proprietary and not "ethical" firms. Domestic ethical market share figures for the twelve largest firms in the industry are shown in Table 22, Appendix 1, page 72. Similarly, the Office of Research of the Nationwide Insurance Company asserts that: The twenty-two largest drug companies, largely in the ethical field, had sales of $2. 3 billion, with a retail value prob- ably about $3 billion. The total production of all drugs, prescribed and non—prescribed, is valued at approximately $4 billion . . . Despite the vast array of firms in the field, fewer than thirty control 90 percent of the total market and nine large firms [corporations with several firms such as American Home Products Company] had 60 percent of the total sales in 1959.2 1Table 8: Domestic Pharmaceutical Sales Figures, p. 29; and Table 9: Profits After Taxes, 1949-1961, p. 30. 2U. S- Senate, Committee on the Judiciary, Drug Industry Anti- trust Act, Part 3: Patent Provisions, Eighty-seventh Congress, First Session (Washington, D.C.: U. S. Government PrintingtOffice, 1962) "The Consumer's Stake In Drugs, " Office of Research of Nationwide Insurance Company, entered as Appendix '17, pp. 1637-1702. 156 157 Finally, three additional estimates of profits and margins as estimated before the U. S. Senate Committee on the Judiciary, Sub- committee on Monopoly and Antitrust3 are reproduced as Exhibits 14, 15 and 16. 3Report: ,Administered Prices - Drugs, Eighty-seventh Congress, FirstSession, Report No. 448 (Washington, 1D..C.: U..S. Government -Printing Office, 1961). 6:0 ommm .3 Sudan .zomonoz pad unshfiusee so soufififioondm 3.25m .m .D 93 98qu mmfiudom;:§uum3§H Mann mg. 5. meowum possumfifigs..nmum30m .0802: usfio was @3383.” mdfipdaodH * om ow oo ow muosponnm 080$ muonpounm gosouh paw moENQEOU N I USN awn—“0.900 8 lllllllll M \ 9m: 8 1 or”... 0.3 \\ 0.3. museum 1 111 ¢MN 0.0N / 111111111 ow I of 0.2 \\ 0.2 8.89 1 fi p.12 53 You ~.S 12 305 $2 2: 111 1111 1 11111111 monm mo «Goononm wmafiunmodcmmaou uofldz own-*hwdofl mofidm mo GBOUxmoHMIIEGO 9.53.958 mdufl "ml BHQHEXH on: .moamm mo “Goons“ 159 .mmow swam .3 Hanna . .Eomosog pad $533115. :0 oouuMEEoondm 8.93m .m .D was chasm mmcfinsom : Shamans: wduQ on“ 5 moofiunm possumwfigfi. 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NH._mH HHNN HV.mH m.oH -NmmH am as ea we. mm H .2: .930 muosponnw moHnonuoamA $353500 muostHnH oEoHH Hoconh pad HooHusopH mcoHumHomuoO noHumU cooHnog 9:va .HHHEm HHV mwduQ mGHusHodesmv/H H2 3 “11 fl omnmmoH £203 52 Go 30me .3333 Gnduom mo moumm .moHGmnHEoU mSnQ 5H HHQHHAXN APPENDIX VIII PRODUCT CONCENTRATION In an attempt to ascertain the importance of product concen- tration, the following two questions were included in the questionnaire: 95. What percent of the total pharmaceutical 1956 % sales for each year (1956 and 1961) was accounted for by the two major products 1961 % of that year ? 96. What percent of the total pharmaceutical sales for 1961 was accounted for by the two major products of 1956? % In 1956, the equally weighted mean of product concentration was 41. 0% with an industry median of 35%. By 1961, the comparable figures were 37. 0%, and 38. 0% respectively. Similarly, the range in 1956 was from 7. 0% of a firm's sales being derived from two products to a high of 90%. By 1961 this range had narrowed to a low of 10.6% and a high of 69. 0%.1 Another topic of interest is the often repeated assertion that product obsolescence is high; that the majority of the products of today 2 will be gone in five. to ten years. While this may or may not be true, 1This may be somewhat misrepresented in absolute terms as one firm, known to have a very high concentration in only two products, refused to reply. - However, in terms of the relative emphasis in the industry, the figures above are representative. 2This is asserted throughout the U. S. Senate Hearings on the drug industry. See for example, U. S.- Senate, Committee on the Judiciary, Drug Industry Antitrust Act, Hearings before the Subcommittee on Anti- trust and Monopoly, Part 3,. Patent Provisions (Washington, D. C. , U. S.7Government Printing Office, 1962), pp. 1662-63. 161 162 Table 25. — Sales of Each Firm's Two Largest Selling Products‘Expressed as a Percent of the Firm's Total Sales for 1956, 1961 a m Two‘Largest Two ‘Largest TwoLargest Sell- Selling Products Selling Products ing Products of Firm 1956, as a 1961, as a 1956; 1961.Sales Code Percent of 1956 Percent of 1961 Expressed as 96 of Number Total Sales Total Sales 1961 Total Sales 6.5 12.6 10.6 10.1 6.4 35.0 40.0 40.0 6.3 22.0 28.0 18.0 6.2 33.3 20.0 20.0 6.1 59.6 49.0 44.9 5.5 28.0. 33.0 24.0 5.4 65.2 54.2 34.9 5.3 40.0 48.0 14.0 5.2 33.4 19.9 13.4 5.1 89.0 48.0 48.0 4.5 50.0 50.0 50.0 4.3 41.4 33.8 29.6 4.1 25.0 35.0 35.0 3.5 25.9 42.0 23.9 3.4 15.3 37.0 14.3 3.3 33.0 38.0 38.0 3.2 N.A. N.A. N.A. 3.1 13.0 38.0 83.0 2.5 57.0 37.0 34.0 2.4 17.0 38.0 5.0 2.3 57.0 36.0 29.0 2.2 40.0 69.0 53.0 2.1 'N.A. N.A. AN.A. 1.5 25.5 12.5 3.2 1.4 7.0 20.0 1.0 1.3 60. 1 54.2 41.7 1.2 35.0 26.0 26.0 1.1 90.0 45.0 25.0 Mean 41.0 37.0 27.9 Median 35.0 38.0 25.5 163 it is evident from Table 24 that most firms have some basic products which are "bread-and-butter" for at least five years. The most comprehensive look at product concentration which is publicly available is that of the U. S. Senate Subcommittee on Anti- trust and Monopoly. The following text and tables have beenexcerpted fr om the report3: CHAPTER 4. ECONOMIC CONCENTRATION IN ETHICAL DRUGS At the outset a differentiation should be made between concentration of production and concentration of sales, or - "control of the market" as it is often termed. It happens that in this industry there is an unusually high degree of speciali- zation on particular products among the industry's major companies. Thus, the nine principal hormone products are produced by only 7 of the 20 largest companies. The diabetic drugs are produced by only 5 of the 20, the tranquilizers by only 6. In sulfas there are only three producers, in vitamins only six, in antibiotics other than penicillin eight, and in penicillin seven. More often than not a large company which markets a broad line of ethical drugs will itself produce less than half of the products, buying the remainder from other major companies, or in some instances from small specialty houses. In such arrangements the drug is usually purchased in bulk form, with the buying company performing the functions of tableting and bottling. An inevitable consequence is that con- centration in terms of sales is lower than in terms of production. But this should not be taken to mean that the latter type of figure is wholly without significance. As long as the legal doctrine prevails that sellers are free to select their own customers, the producing firm is in an advantageous position vis-a-vis its competitors who also happen to be its customers. ’Although the degree of dependence may be mitigated by purchase contracts, most contracts have a terminal date. If the supplying firm does not wish to renew the contract and there are only one or two other producers, the buying firm may have difficulty in securing a new source of supply. This may be particularly true 3U. S.~Senate,‘ Committee on the Judiciary, - Subcommittee on Anti- trust and Monopoly, Eighty-seventh Congress, First Session, Adminis- tered~Prices-~-Dr_1igs (Washington, » D.C.: U. S. Government Printing Office, 1961), pp. 65-69. 164 if he has made substantial inroads on the producers' sales or has failed to adhere to an established price structure. -If, as is true more often than not, the supplier is a monopolist, the buying firm may not wish to duplicate the plant, equipment, and know-how necessary for production; he may also encounter a patented intermediate, a process patent, or other legal barrier to production. (Hence, it can be seen that figures on concentration of production, while usually overstating concentration in the market as of a given time, nevertheless have a unique significance with respect to the concentration of economic power in the long run. Conc entration of production During the hearings, concentration ratios prepared by the sub- committee staff were placed in the record for 51 products in the major product groupings--hormones, diabetic drugs, tranquilizers, sulfas, vitamins, and antibiotics. These rations, presented in chart 8, show the percentage share of the total U. '8. output in 1958 accounted for by each of the 15 major drug companies which produce 1 or more of these products. 1 The 15 products represent at least two-thirds of the total value of all ethical drugs in 1958.2 In addition to indicating the per- centage of output accounted for by each of the major companies, the chart shows with an "X" those instances where a company sells a product but does not produce it; where for some reason a company pro- duces a product but does not sell it to the drug trade, a circle is drawn around the concentration ratio. There are in all 87 instances in which the 15 major drug companies produce and sell the 51 products shown on the chart. There are 127 X's on the chart representing instances where the drug company sells the drug but does not produce it; there are 14 instances of the anomalous situation where the company produces the drug but does not sell it. 1In addition, the subcommittee sent its questionnaire to seven other companies, each a major factor in the drug industry. -None re- ported that it manufactured any of these 51 products. These companies are Mead Johnson, ' Norwich Pharmacal, A G. D. .Searle, . Sterling Drug, U. S. Vitamin 81 Pharmaceutical, -Vick Chemical, and Warner Lambert (hearings, pt. 21, p. 11742). 'zHearings, pt. 19, pp. 10772-10783. On the basis of information presented by Dr. Austin Smith, president of the Pharmaceutical Manu- facturers Association, certain revisions in the original percentage figures were made; in addition, the information presented in the chart was expended to indicate whether sales were made by a company which did not produce the product and whether sales were not made by companies which produced it (hearings, pt. 19, pp. 10773-10774, 10825; pt. 21, pp. 11740-11745). 165 [\Hn—tv—tu—‘u—IN NF-Qo—Co—il—‘l-il-i as 2: bod on: em OOH 0:499:6qu: GGMNNEOHQ A ”Gdflgflfiahvm 29288285 o.§.um§o&HoEo was as 3 3.» unapomom_ ”WMHNHJHDOZ12);qu KIWI H 'e'T ‘ uuetuyog V810 191.193 W'IOlSI-IEI '9on my U‘EAO HIV noqu UDMQ .mO W52 .hO ZOHBDDQOMQ .mO ZOHH0. cofiofipokm Sm podonuaou 93.30 \m 33.—HO moospoum I mHMHonEdZ cofiuuMU Eofiodpoum mo ommuamohonm “Gomoumom wnongz “EEO mdom .. 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Eoanouaeuum CM “$89298 50>Eopcm30 5.33an GMU>EOH£§HM 50> Eofimo .Sm 0 Martina cw “$509294 3032398ng0 ”mDHHOHmHBZ< LnMV'M—‘H—GMM ><><>< ><>< ><>< ><><><><><>< ><>< ><><><><><>< OCH OCH ww Om E ><><><><><><><><>< mm so; 7:; aa $3 3 \OXX ><>< “>4 ><><><><><>< 23. 0388... 30.9 839 scam "mEESE/ «comm—o—m—«rxr—c r-(Hu-Qu—Ar—iu—CNH ><><>< NM oo~ on: OOH ,>>4E at 8: 8: 2: 2: zoning.“ 2033333 Bosmfififisflrmfinm 30 NmEumfiam Tr: o 0.9m 838m 6.1823323 ocflgbamfism ocfiumgfiacnxofiofimfidm ocfifivmfidm DHDNUHNDHHHHUO "m .3099on "mHUMDOm ”QZMUMA 167 Representing one extreme is Parke, Davis which sells 20 of the 51 products but produces only one (chloramphenicol), or a ratio of products sold to products produced of 20 to 1. At the other is Pfizer which also sells 20 products but manufactures 14, for a ratio of 1:1;- to l. The ratio of products sold to products produced for each of the companies is as follows: 3 Pfizer -------------------- - ----------------- 1%- to 1. ~ Merck -------------------------------------- 131- to l. Bristol-Myers ----- -- ------------------------ 1%- to 1. .American Cyanamid (Lederle) ---------------- 2 to 1. CIBA -------------------------------------- 2 to 1. Hoffmann—LaRoche -------------------------- 2 to 1. ~ Lilly -------------------------------------- 3 to 1. American Home Products (Wyeth) ------------- 3 to 1. Olin Mathieson (Squibb) ---------------------- 3 to 1. Upjohn ----------------- J -------------------- 3 to 1. Abbott ------------------------------------- 3 to 1. . Schering ------------------------------------ 4 to 1. 7 Smith Kline 81 French ------------------------ 5 to 1. Parke, Davis ------------------------------- 20 to 1. Thus, insofar as the 51 products are concerned, only 6 companies produce as many as half of the drug products which they sell. About half of the companies are faced with the possibility that their supplier may discontinue sales on at least two out of every three products which they market. In the degree of dependence by major companies upon others and particularly upon their competitors for their supplies, the ethical drug industry is unique among manufacturing industries. There is still another way in which the concentration of production in this industry appears to be unique. It is an accepted maxim that among highly concentrated industries concentrating typically takes the form of oligopoly (control of the feW) rather than monopoly. Insofar as production is concerned, the drug industry represents a striking exception. This can be seen in the summary tabulation prepared from the preceding chart. It shows for the 51 products the number of firms required to pro- duce 100 percent of the U. S. output: 3The listing omits the unusual case of Carter which sells only one of the products, which, incidentally, is made for it. 168 Table 27. 51 Ethical Drugs - Number of Companies Required to Produce Total U. S. Output T f d Number Number of companies ype o rug of drugs 1 2 3 4 5 7 Hormones 9 3 2 Antidiabetics 3 1 1l 1 Tranquilizers 7 6 12 Sulfas 9 8 Vitamins 9 3 4 13 14 Antibiotics 9 5 1 l 2 (excluding penicillin) Penicillin 5 1 2 2 Total 51 27 8 10 l 3 2 lIncludes Hoechst, not on table (Orinase). zReserpine: includes producer not among 22 major companies. 3Includes a producer of B2 not on table. 4Includes 2 producers of A not on table. » In 27 of the products, or more than half, the entire U. S. output is produced by l of the 15 companies shown in Chart 8. Insulfa drugs one company accounts for 100 percent of the output in eight of the nine products. In tranquilizers the condition of monopoly prevails in six of the seven products. A In antibiotics (other than penicillin) the total output is produced by one company in five out of the nine products, and in hormones andvitamins, each, in three out of the nine. In 8 additional products concentration takes the form of' "duopoly"--control by 2, while in 10 6thers the entire output is produced by 3 companies. Against the typical structure of concentration in manufacturing industries, it is indeed remarkable that in only 6 of the 51 products are there as many as 4 producers. APPENDIX IX ATTITUDES OF SALES MANAGERS TOWARD COMPENSATION CRITERIA To study sales managers' attitudes toward compensation criteria two methods were used. First the sales manager was asked to give his replies to an inventory of attitude questions which focused on the three criteria referred to in virtually every sales management class. These three were that a compensation program should: (1) provide an incentive to the man to perform the job requirements; (2) be fair to the company and the salesman; and (3) provide income security to the man. Second, sales managers were asked to indicate their rank order- ing of the importance of seven criteria which included the above three plus four additional. This was accomplished by selecting the most important, then the least important, then the most important of those remaining, and so on. As the number of respondents was to be less than fifty, the technique of Guttman Scaling was used. A Guttman Scale is an ordinal scale with no zero point, thus one person's replies are measured in terms of the replies Of others. There are a number of excellent works on scaling procedures and psychometric methods. Two of the best known are those of Samuel Stoufferl and W. S. Torgerson.z The work in this appendix is based 1Samuel Stouffer, it a_._1. , Measurement and Prediction, Vol. IV (Princeton, New Jersey: Princeton University Press, 1950). 2W. S. Torgerson, Theory and Methods of Scaling (New York: John Wiley and Sons, 1958). 169 170 on the present writer's paper, ”A Guide To The Use Of Scalogram Analysis, " [unpublished mimeograph, 1961] which was based on the foregoing authors' works. Also, notation procedure was based on the paper of Professor F. B. Waisanen entitled, "Typewriter Notation In Scalogram Analysis, [unpublished mimeograph, 1961]. Conclusions and inferences from these inventory replies and analyses are found in Chapters IV and V. Company names have been replaced by company code numbers so that individuals and companies cannot be identified. Disagreed With Question No: 57 58 55 60 62 59 56 61 x x x xxxx xxxxx x xxxxxx x xxxxx xx xx xxx xxxxxxxx xx xxxxxxxxxxxxx xxx x xxx XXXXXXXX XXXX X XX X XXX 171 57 58 55 60 Scalogram of Replies on Security Inventory 56 61 Agreed With Question No: X X X X X X X X 62 59 5 Table 26. Firm Code No. 2. XX XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXX X XXXXX X XXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXX XXXXXXXX X XXXXXXXXXXXXXX XX XX XXXXXXXXXXX XX X XXXX X X X XXX X X X X X 351315243451523124213124354 245446661131515233236655312 . 633 w u 21 224-164 1.. 19 17. errors beI errors CxN-E mode C 21 1.. 1222023 8 9 (Modals Underlined) AM Coefficient of Reproducibility Coefficient of Scalability = 1 - Freq. 62. 59. 56. 61. 57. 58. 55. 60. 172 EXHIBIT 17: Security Inventory Questions Salesmen in the ethical pharmaceutical field today have too much income security. A B C D E Our company sales compensation plan is too concerned with security. A B C D E The experienced and competent salesman is not concerned regard- ing week-to-week or month-to-month fluctuations in earnings, but concentrates on total annual earnings. A B C D E Too much security of income will cause poor salesmanship. A B C D E Salesmen as a group are generally less concerned with security of income than are other employee groups. A B C D E The important factor is not security of income, but rather, the salesman‘s self confidence of his sales ability. ‘If his self confidence is high, his concern with security, is low and vice versa. A B C D E An experienced and competent salesman thinks of opportunity rather than security of income. A B C D E There is some minimum amount of security needed in any sales compensation plan. If this minimum amount is not provided, one finds it very difficult to hire and retain good salesmen. A B C D E X Diagreed With Question No. 72 7170 69 66 65 64 68 67 63 x xx x x x xx x xx x x xxxxxx x xxxxxxxxxxxxxxxx x x xxxx xxxxxxxxxxxxxxxx xx xxxxxxxxxxx xxxxxxx xxxxxx x x xxx xxxxxxxxx XXX X XXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXX XXX X L 173 XXXXX Scalogram of Replies on Incentive Inventory X Agreed With Question No. 72 71 70 69 '66 6.5 64 68 67 63 Table 27. Firm Code No. XXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXX XXXXXXXXXXXX XXXX XX XXX XX XXXXXXXXX XX XXXX XXX XXXX XXXXXXXXXXXX XXXXX XXX X XX XXX X XXXX X XX X X X XX XX X XX 542541324541321521253345113 COO...OOOOOOOOOOOOOOOOOOI... 131252132313456464263665512 . 886 32 32_ 1.. % 280 2524202122198 7 4 0 :11- errors errors CxN -2 Mode C CxN 3 4 8 7 6 920212428 (Modals Underlined) Coefficient of Reproducibility = l - Coefficient of Scalability = 1 - _.__M Freq. f ‘ ““thrszu—v- - Lt! 72. 71. 70. 69. 66. 65. 64. 68. 67. 63. 174 EXHIBIT 18: Incentive Inventory Questions - Non monetary incentives such as free trips to Europe, outstanding salesman of the year awards, etc. , tend to be more important to salesmen than cash incentives. A B C D E Contests, properly designed and operated, are more effective as an incentive than are commission or bonus plans. A B C D E Group incentives such as a bonus pool or shared commissions are more meaningful to the company because selling is a team effort. A B C D E There is probably too much emphasis on incentives today; either a man is an interested and effective salesman or he isn't, and incentives won't change his behavior very much. .Sales contests tend to undermine the professional attitude toward selling. A B C D E One of the major problems in using a commission plan is that it tends to cause salesmen to "oversell" the customers. A B C D E Money is probably the strongest incentive affecting salesmens' performance. A B C D E A sales compensation plan should not have a maximum earnings limitation. The salesman should be able to earn as much as he is able, even if it is more than the sales manager's income. A B C D E An automobile is an extremely important inc entive to salesmen. A , B C D E A good sales compensation plan always provides an incentive to the salesman to earn more money. A vs 4- n .— 175 Table 28. Scalogram of Replies on Fairness Inventory W Firm Code Agreed With Question No. Disagreed With Question No. No. 78 78 76 77 75 79 78 73 76 77 75 79 1.4 X X X X X X 1.1 X X X X X X 5. 3 X X X X X X 3.1 X X X X X X 4. 3 X X X X X X 2. 3 X X X X X X 1. 3 X X X X X X 4.1 X X X X X X 6. 2 X X X X X X 2. 2 X X X X X X l. 2 X X X X X X 2. 5 X X X X X ' X 5. 2 X X X X X X 6. 3 X X X X X X 2.4 X X X X X X 5. 5 X X X X X X 3. 5 X X X X X X 6. 1 X X X X X X 5.4 X X X X X X 3. 2 X X X X X X 6. 5 X X X X X X 3. 3 X X X X X X" 6.4 X X X X X X l. 5 X X X X X X 4. 5 X X X X X X 5.1 X X X X X X 3.4 X X X X X X 2.1 X X X X X X Freq. 9 16 13 7 14 18 19 12 15 21 14 10 (Modals UnderI-i-r—ied) _ — _ — — Coefficient of Reproducibility = - 36—8- = .8__2_2_ Coefficient of Scalability = 1 - errors = ._5_5 CxN- 2 Mode C .‘.:=1 78. 73. 76. 77. 75. 79. 176 EXHIBIT 19: Fairness Inventory Questions A sales compensation plan should provide additional income for additional investments of the salesman's leisure time in such activities as night school, extra training sessions, special duties, etc. A B C D E What a manager considers as being a fair and equitable compen- sation plan is often different from what a salesman considers as fair and equitable. A B C D E A guaranteed minimum income is fair to the salesman, and a guaranteed maximum is fair to the company. A B C D E A salesman should not be allowed to earn an income which is equal to or greater than his superior, because the salesman does not have managerial responsibilities to perform. A B C D E Men of equal productivity should receive equal pay regardless of time with the company. A B C D E In the final analysis, it is measurable sales results that should determine a man's income, and not years of service, amount of responsibility, degrees received in college, or any other basis which is not directly related to sales results. A B C D E 177 Table 29. Rank Correlation of Firms' Scores For Attitude Inventories = Rank Orderinggf Firms by Score Squared Inventory Security Inventives Fairness Rank Differences Inventory Inventory Inventory For Individual Firms Rank (A) (B) (C) (A-B)‘ (A-C)7' (121-C)z 1 2.5 1.5 1.4 9 121 576 2 2,3 3.4 1.1 676 1 484 3 4.5 1.2 2.3 196 484 64 4 5.1 2.5 5.3 484 484 64 5 4.3 5.4 3.1 64 1 196 6 4.1 2.1 4.3 196 ' 4 484 7 6.5 1.3 1.3 196 196 0 8 6.2 3.2 4.1 100 1 144 9 6.4 2.4 6.2 225 196 36 10 1.3 3.5 2.2 9 9 49 11 1.4 1.4 1.2 0 100 100 12 3.5 3.1 2.5 4 25 49 13 1.1 4.3 5.2 196 121 49 14 5.5 5.3 6.3 121 4 100 15 1.2 5.2 2.4 144 16 4 16 5.3 6.1 5.5 4 144 4 17 2.1 4.5 3.5 121 121 64 18 3.2 6.2 6.1 100 .4 81 19 3.4 4.1 5.4 289 64 121 20 2.2 2.2 3.2 O 100 100 21 3.1 6.5 6.5 81 256 O 22 6.3 3.3 3.3 81 64 O 23 6.1 6.3 6.4 49 25 81 24 5.2 6.4 1.5 81 121 1 25 5.4 5.5 4.5 400 36 81 26 3.3 5.1 5.1 16 16 0 27 1.5 1.1 3.4 676 9 625 28 2.4 2.3 2.1 361 9 625 4772 2892 4182 (1) Rank correlation A with B: rho = l - M = 28632 - -._3_0_§_ "t" . 308 «1 267.905 = .308 (5.37) = 1.655 (not significant) ‘6(289Z) _ 17352 _ 21924 ‘ 21924 ‘ 'g "t" = .208 «126/.96 = .208 (5. 2) = 1.08 (not significant) . . 6(4182) 25892 ( ) Rank Correlation B w1th C rho 21924 21924 (not significant) (2) Rank Correlation A with C: rho = 1 - = -.145 178 EXHIBIT 20: Item Analysis of Inventory Scores Items which are significantly related to firm score on: Security Inventory: #56, 57 Incentive Inventory: #65, 66 Fairness Inventory: #76 Total of Three Inventories: #76, 77 Item 56: Total Score (Security) Score on item 56 low h1gh 1 2 13 15 O 8 5 13 10 18 28 Yates Correction: 28(|10-104|-14)z _ 28(80)z _ 5 08 (15)(13)(10)(18) 35,200 '= significant at . 05 level. Fisher' 8 Exact Method: 15'. 13: 10: 18'. 1 003 x109 = : ' : o 1 P2 2213: 815528! 95,240 x10? 0 055 15:13:10!18! _ 557 x109 P1 ‘ 111419141281" 668,000 x 109 ‘ '000833 15: 13:10:18: _ 1,040 x109 _ P° ‘ 0: 151 10132281' 47,620 x109 ‘ ’000022 2:19,: .011405 It 57: _em_ Total Score (Security) Score on item 57 low high 1 3 17 20 0 7 1 8 10 18 28 Yates Correction: 28(13-119|-14)z 28(102)-’- (201(8)(10)(18) = 28,800 179 significant at . 0005 level. Item 65: Score on item 65 1 0 Yates Correction: 28(112.-91|.14)Z _ 117,800 (91(19)(15)(13) 33,300 I L» U1 up- not significant at .05 level. Fisher' s Exact Method: 9'. 19'. 15! 13! P2 = 217'. 1316128! 9: 19: 15: 13: P1 1: 8: 14: 5: 28'. P 9119115113: 0 0: 91 1514128: EP. :: . 028894 Item 66: Score on Item 66 l Fisher's Exact Method: P0: 6122! 15! 131 0'. 6'. 1517128! 130.5 x109 _ 5,013 x109 97.9 X 109 35,091 X 107’ .259 X 109 _ 2,506.5 x109 ‘ 1. 237 x106 _ 577,000 ‘ 28,800 271. 250 x10r = 19.82 Total Sc 0 re (Inc entive) low high 2 7 9 1.4 _6 .12 15 13 28 026000 002790 . 000104 T otal Sco r e (Inc entive) low high 0 6 6 1.5 __7_ 9.3-. 15 13 28 = . 0046 180 Item 76: Total Score (Fairness) Score on item 76 low high 1 3 10 13 0 11 _4 1.5. 14 14 28 Yates Correction: 28(I9-1101-14)Z _ 197,568 517 (13)(15)(14)(14) ‘ 38,200 '= is significant at . 025 level. Item 76: . , Total Score (overall) Score on item 76 low high 1 5 8 13 0 l4 1 15 19 9 28 Yates Correction: 28(15-1121-14)‘ _ 242,172 _ 727 (131(15)(19)(9) " 33.345 —4___— is significant at . 01 level. Item 77: Total Score (overall) Score on item 77 low high 1 2 5 7 0 g _4 21 19 9 28 Yates Correction: 28(18-851+14)z _ 111,132 _ 442 (7)(19)(9)(21) ' 25,137 " 24;: is significant at .05 level. APPENDIX X ANALYSIS OF 2n CONTINGENCY TABLES While analysis of 2 X 2 contingency tables is a worthwhile effort, it was also decided to analyze several selected 2 X 2 X 2 contingency tables by the use of factorial analysis. The method used was that described by A. E. Maxwell. 1 First, it was necessary to dichotomize the data and arrange it in contingency table form. These tables are number 16, 17 and 18 on pages 43, 44 and 45 respectively. The last row of each table is the proportion "explained" by a given series of contingencies. For example, in Table 16, the first entry in the last row is the proportion of five firms which are low on product concentration, low on managerial con- trol and low in average compensation of detailmen and yet which are high in sales growth. Taking the number in the third row as "n", and the proportion "explained" as "p", this proportion should be transformed so that all changes are proportioned rather than absolute. For example, if a low proportion doubles (e. g. , . 20 X 2 = . 40), one would 931:. expect a very high proportion to double‘(e. g. , . 90 x 2 = 1.80) as this would indicate a proportion greaterthan 1. 0 or certainty. Thus, the "p" values are transformed to Z values by calculating r = 2p-l and then, taking an r to~Z transformation table, read the proper Z value. vOnce theZ values have been determined, sum them. This repre- sents the-Z transformed sum of all explained proportions. This is the , 'A. E. Maxwell, 32. c_:i_t_., Chapter VI, "The Analysis of 2n Contingency Tables. " 181 n! 182 control figure. The Z values are added, by twos, fromthe top and subtracted, first from the second, third from the fourth, etc. , making a new column. This same addition- subtraction process is continued until a column is computed, the first entry of which is equal to the con- trol figure. Divide each value in this column by eight (number of final contingency categories) to obtain the first approximation of a_l_1 categories. Next, take the Z values yielded for the pure effects (e. g. , in the first case, . (/), p, m and c) and compute the Z1 values to be used in the second approximation. For example, the Z1 value of (l)1 = the X value of (/) - p - m - c, or, -l.3890 - .0875 - .0351 + 1.3380 2 -.3496 in our first problem below. The resultant Z1 values are then transformed, by inspection of a transformation table, to R1 values and the weighting process is evident from inspecting the formulas. .Similarly, the nw and anl column are successively summed and subtracted, two at a time as in the first approximation. The result- ing values of the nw column are placed in matrix form as shown below and inverted. The inverted matrix is post multiplied by the anl values for (/), p, m and c. The square root of the diagonal entry in the inverse matrix is the standard error of the contingency item and when compared to the post multiplied product will indicate the significance of the estimated value. It should be noted that: (1) this analysis only assesses the main values and not the interactions; (2) contingencies used are ex post facto contingencies and thus are only tools for inductive inference and associ- ation; and (3) the small sample size would indicate that replication through time would be valuable. The calculations for each contingency table are shown as Tables 30, 31 and 32. 183 Table 30. Factorial Analysis Procedure for Table 16 Data n p r=2p-1 Z (/> 5 .200 - .600 - .6990 p 5 1.000 1.000 5.0000 In 5 .400 - .200 - .2090 mp 1 0.000 -1.000 ~5.0000 c 4 0.000 -1.000 -5.0000 cp 0 0.000 -1.000 -5.0000 cm 2 . 500 0. 000 . 0000 cmp 5 .400 - .200 - .2090 Z = 'éiéi= Final (1) (2) (3) let Estimate (/) 4.3010 - .9080 -11.1l70 -1.3890 p - 5.2090 -10.2090 .6990 .0875 m -10.0000 .9080 .2810 .0351 mp - .2090 - .2090 -10.6990 -1.3380 c 5.6990 - 9.5100 - 9.3010 -1.1620 cp - 4.7910 9.7910 - 1.1170 .1395 cm .0000 —10.4900 19.3010 2.4130 cmp - .2090 - .2090 9.2810 1.1620 Table 30 - (continued) 184 Z' R w=(1-Rz) nw an' (/> - .3496 -.3360 .887 4.440 -1.550 p - .1746 -.1729 .970 4.850 - .850 Hi - .2794 -.2724 .925 4:620 -1 290 rnp - .1044 -.1041 .982 .980 - .103 c -2.6736 -.9905' .018 .072 - .193 cp -2.5861 —.9887 .023 .000 .000 cn1 -2.6385 -.9898 .021 .042 - .111 can) 2.4284 -.9845 .031 .155 - .377 15.159 -4.474 ==========.======E. : ============= Final Final an1 (2) (3) anWI) 91 (M (/) 9.290 -4.890 15.159 -2.400 -3.793 -4.474 p 5.600 .269 - 3.189 -1.393 - .681 1.814 nn .072 -3.230 - 3.565 - .193 1.887 .712 rnp .197 .041 - 3.865 - .488 - .073 .028 c .410 -3.690 -14.621 .700 1.007 3.112 cp -3.640 .125 3.271 1.187 - .295 -1.960 cnn - .072 -4.050 3.817 .193 .487 -1.302 cmp .113 .185 4.235 - .266 - .459 - .946 Table 30 - (continued) Matric For Inversion 185 Weighted (/) p m c Estimate (/) 15.159 - 3.189 - 3.565 -14.621 -4.474 p - 3.189 15.159 - 3.865 3.271 1.814 - 3.565 - 3.865 15.159 3.817 .712 c -l4.621 3.271 3.817 15.159 3.112 Inverted Matrix Standard (/1 p m c Error (/) +.9470 -.00032 -.0079 +.9155 .97 p -.00032 +.0775 +.0256 -.0235 .28 m -.0079 +.0256 +.0789 -.0330 .28 c +.9155 -.0235 -.0330 +.9623 .98 ==: I Product Of Post Multiplication Critical Ratio: Significant (ME) ME/SE Level V) -1.3942 —1.44 P<.20 p + . 0872 . 31 Not significant m + .0352 .13 Not significant c -1.1671 -1.19 P (.30 186 Table 31. Factorial Analysis Procedure for Table 17 Data W n p r=2p-1 Z (/) 5 - .200 - .600 - .6990 m 3 0.000 -1.000 - 5.0000 p 3 0.000 —1.000 - 5.0000 mp 4 . 750 . 500 . 5499 a 4 .750 .500 .5499 am 4 . 500 . 000 .0000 ap 5 .600 .200 .2025 an“) 0 0.000 -1.000 - 5.0000 2 = -14. 3967 W Final (1) (2) (3) lst Estimate (/) -5.6990 -10.1491 -14.3967 -1.80 m -4.4501 - 4.2476 - 4.5043 - .56 p .5499 1.2481 - 4.0985 - .51 mp -4.7975 - 5.7524 5.1983 .65 a -4.3010 1.2489 5.9015 .74 am 5. 5499 - 5. 3474 - 7. 0005 . 88 ap - .5499 9.8509 - 6.6963 .84 an“) -5.2025 - 4.6526 -14.5035 1.81 187 Table 31 - (continued) Z' R w=(l-R?’) nw an' (/) 19-1.47 -.8996 .190 .950 -1.395 m -2.59 -.9888 .022 .066 - .171 p -2.49 -.9864 .028 .084 - .209 mp -3.61 -.9985 .003 .012 - .043 a .01 .0100 .9999 4.000 .040 am -1.11 -.8041 .353 1.412 -1.567 ap -1.01 -.7658 .413 2.065 -2.085 amp -2.13 -.9722 .055 .000 - .000 2 = 8.589 2: -5.430 IN”) (2) (3) an' (1) (Z) (3) (/) 1.116 17112 8.589 -1.566 -1.818 —5.430 rn .096 7.477 -5.609 - .252 -3.612 1.868 p 5.412 - .956 -4.267 -1.527 1.390 .756 rnp 2.065 -4.653 1.335 -2.085 .478 2.634 a - .884 - .920 6.365 1.224 1.314 -1.794 an: - .072 -3.347 -3.697 .166 - .558 -- .912 ap -2.588 .812 -2.427 -1.607 -l.058 -1.872 anmp -2.065 .523 - .289 2.085 ‘3.692 4.750 Table 31 - (continued) Matrix For Inversion 188 Weighted (/) m p 3. Estimate (A 8.589 -5.609 -4.267 6.365 -5.430 m -5.609 8.589 1.335 -3.697 1.868 p -4.267 1.335 8.589 -2.427 .756 6.365 -3.697 -2.427 8.589 -1.794 Inverted Matrix M Standard (/) m p a Error (/) +. 5010 +. 1992 +. 1492 -. 2433 . 71 m +.1992 +.2242 +.0541 -.0367 .47 p +.1492 +.0541 +.l711 -.-389 .41 -.2433 -.0367 -.0389 +.2700 .52 Product Of Post ,, Multiplication Critical Ratio: Significant (ME) ME/SE Level (/) -l.798 -2.53 P< .02 m - .560 -1.19 'P<.3O p - .510 -1.24 P<.25 .739 1.42 .P<.20 189 Table 32. Factorial Analysis Procedure for Table 18 Data n p r=2p-l Z (/) 6 0.000 -1.000 -5.0000 t 2 . 500 . 000 .0000 p 2 .500 .000 .0000 pt 5 .400 - . 200 - . 2090 a 4 .750 . 500 .5499 at 4 .500 .000 .0000 ap 3 .333 - .334 - .3470 apt 2 1.000 1. 000 5.0000 2 = -0.0061 Final (1) (2) (3) 1st Estimate (/) 5. 0000 -5. 2090 - .0061 - .00076 t .2090 5.2029 9.5881 1.200 p .5499 4.7910 8.8941 1.112 pt 4.6530 4.7971 .6879 .086 a 5.0000 4.7910 10.4119 1.300 at .2090 4.1031 .0061 .00076 ap .5499 -5. 2090 .6879 - .086 apt 5.3470 5.8969 11.1059 1.389 190 Table 32 - (continued) Z' R w=(l-Rz) nw an' (/) -3.613 -.9985 .003 .018 - .065 t -1.213 -.8376 .298 .596 - .723 p -1.389 -.8828 .221 .442 - .614 pt 1-011 .7662 .413 2.067 2.090 a -1.013 -.7670 .412 1.650 -1.675 at 1.387 .8824 .222 .888 1.232 ap 1.211 .8370 .298 .894 1.082 apt 3.611 .9985 .003 .006 .022 23: 6.561 2: 1.349 Final Final WM (2) (3) (1)an' (2) (3) (/) .614 3.123 6.561 - .788 - .688 1.349 t 2.509 3.438 .553 1.476 .661 3.893 p 2.538 2.203 .257 - .443 2.046 3.811 pt .900 -1.650 .921 1.104 1.847 - .605 a .578 1.895 .315 - .568 2.264 - .027 at 1.625 -l.638 -3.853 2.704 1.547 - .199 ap - .762 1.047 -3.533 2.907 3.362 - .717 apt - .888 - .126 -1.173 -1.060 -3.967 -7.329 191 Table 32 - (continued) Matrix For Inversion W Weighted (/) t p a Estimate (/) 6.561 .553 .257 .315 1.349 t .553 6.561 .921 -3.853 3.893 p .257 .921 6.561 -3.533 8.811 .315 -3.853 -3.533 6.561 - .027 Inverted Matrix Standard (/) t p a Error (/) +.1580 -.0332 -.0227 -.0393 .40 t -.0332 +.2562 +.0665 +. 1879 .51 p 3.0227 -.0665 +.2332 +. 1657 .48 -.0393 +.1879 +. 1657 +.3539 .62 W Product Of Po st Multiplication Critical Ratio: Significant (ME) ME/SE Level (/) - . 0016 - . 000 Not significant t 1.201 2.37 P<.05 p 1.112 2.32 P<.05 1.300 2.10 P<.05 APPENDIX XI THE THEORY OF TIME-DISCRETION ABILITY AS A UNIT OF MEASURE IN JOB PERFORMANCE AND CONSUMPTION BEHAVIOR One of the most interesting and insightful wage theories ever developed is that by Elliott Jaques. His theory attempts to measure and explain, meaningfully, income level, work performance, and individual development. Furthermore, consumer behavior is ex- plained by the same measures. This is especially valuable in that it provides a behavioral-economic common denominator which, with more work and research, may provide the basis for integrating macroeconomic income, consumption and saving theories with micro- economic consumer behavior. To give a brief understanding of Jaques' theory, the following summary has been excerpted from his book, Equitable Payment:l Summary of the Theory 1. There are three main types of economic work: share- holding, directorial work, and employment work. ~ (Entre- preneurial work combines the first two, and self-employment combines all three.) The theory of this book is concerned with employment work. 2.. Employment work is defined as the exercise of discretion in discharging a contract to carry out tasks set by an employer, within prescribed limits and policies which he fixes. M4; lElliott Jaques, 22. _c_i._t., pp. 17-21. 192 193 3. It. is the type of work for which salaries or wages are paid, and which constitutes the subject of individual payment differen- tials. 4. Level of employment work can be measured in terms of the time-span of discretion in a job; that is to say, by the maximum period of time during which the use of discretion is authorized and expected, without review of that discretion by a superior. II 5. There exist shared social norms of what constitutes a fair or equitable payment for any given level of work, these norms being intuitively known by each individual. 6. The totality of these norms constitutes a pattern of equit- able differential payment for differentials in level of work carried. III 7. Each individual is endowed with a given potential capacity for work, this potential capacity showing a characteristic pattern of growth and decline with-age, as represented in the standard earning progression array. 8. Each individual is unconsciously aware of his own current potential capacity for work, the level of work in the role in which he is employed, and the equitable payment level for his role. 9. Each individual is therefore unconsciously aware of the extent to which his role fulfills his potential current capacity, and the extent to which his actual payment conforms to equity or deviates from it. 10. The unconscious awareness of these judgments is experi- enced in feeling, but is difficult to verb‘alize in a manner precise enough to match the accuracy of the judgment. Moreover, this unconscious awareness exists regardless of the fact that a person may at the same time have grandiose or omnipotent phantasies about himself, or masochistically denigrate himself. 194 IV 11. There is an optimum level and rate of consumption for each person, in the sense that consumption at that level and rate is consistent with dynamic psychological equilibrium, and consumption above or below that level and rate leads to increas- ing psychological disequilibrium. 12. This optimum consumption is related to the individual's level of capacity for discriminating expenditure. 13. There is a direct correspondence between each person's level of capacity for discriminating expenditure-and his level of capacity in work. 14. There is, therefore, an optimum level of payment for any given level of work: it is that level of payment which will provide a person whose capacity is just up to that work, with an income which matches his capacity for discriminating expendi- ture and his level of satisfaction consumption. 15. Although the total consumption requirements for a married man and his family will differ from those of a single man, this does not affect the theory of paying the equitable rate for a given level of work. Variations due to family requirements are matters of national policy to be handled in taxation, family benefits, and welfare and other procedures such as social insurance.1 V 16. Individuals differ in level of capacity in work. 17. Individuals differ also inlevel of capacity for discrimi- nation expenditure and in level of satisfaction consumption. 18. The work and income distribution which gives dynamic psycho- economic stability in a society is therefore a differential 'IIndeed, I have little doubt that a social analysis would reveal the existence of unconscious social norms about the value to a person of having a family, and how much national taxation and social benefits ought to influence the net incomes of single and married employed persons. 195 one, and corresponds with the character of the distribution of capacity to work and capacity for discriminating expenditure among the individual members who compose it. 19. It is this differential pattern which generates the norms of equity in payment distribution. 20. In an under-abundant economy the equitable distribution of income is less differentially steep; the more impoverished the economy the flatter the equitable distribution. 21. Under mere subsistence conditions, equity is served by equality (except for the special needs of the ill, the infirm, and the helpless); that is to say, equilibrium is obtained by a non- differential distribution, everyone alike receiving that amount necessary to remain alive. VI 22. The actual distribution of payment in any society at any given time will be mainly determined by the interaction of two sets of forces: first, impulses of equity in the members of that society, which cause them to seek to establish a differential distribution which corresponds to the equitable distribution; second, the destructive impulses in the members of that society which cause them to seek personal gain at the expense of others, by means of power bargaining and regardless of equity. 23. In the absence of equitable regulation of payment, imper- fection in the labour market for whatever reasons, makes it possible for the destructive impulses to be expressed in the form of exploitation by the favoured groups to bring about deviations between the actual distribution of payment and the equitable pay- ment distribution. 24. Imperfections in the labour market can be exploited-- whether by employers or employees--only to a certain point. At about 20 per cent departure from equity an explosive situation develops, the outcome of which would be difficult to predict. VII 25. , Abundant employment (in contrast to full employment) is that condition which provides not only a job for every individual who seeks to work, but a job at a level of work consistent with his capacity. 196 26. . Psycho-economic equilibrium is best achieved in the individual by a level of work corresponding to his capacity and equitable payment for that work. 27. At a level of work greater than his capacity, a person will fail; at a level less than his capacity, disequilibrium will show either in dissatisfaction or in psycho-pathology characterized by acceptance of non-utilization of personal capacity’in work. 28. At an over-abundant level of income, disequilibrium will show in squandering and waste, or in defensive behavior against squandering; at an under-abundant level of income, disequilibrium will show in feelings of impoverishment and economic want. 29. The reaction to disequilibrium will be critically influenced by the extent to which the notion of equity is accepted by a society and obtains in it. 30. The greater the acceptance in society of equity in income distribution and employment opportunity, the more will psycho- economic disequilibrium in the individual express itself in the desire for social co-operation to establish and maintain equity and abundance. 31. The greater the rejection in society of these conditions, and the greater the reliance upon bargaining for the price of labour, the more will psycho-economic disequilibrium in the 'individual express itself either in resentment against those who are differentially in a preferred position, or in unenlightened self-interest by those who are in that preferred position. VIII 32. Each individual has a normal pace of work and intensity of application, which he will apply to his work as long as his conditions of work do not inhibit him. . 33. Equity in payment and abundant employment are necessary conditions in the long run to avoid inhibiting normal pace and application toework; inequitable payment and fear of unemploy- ment in the long run inhibit pace and application. 197 IX 34. Under conditions of inequitable distribution of payment and uneven Opportunity for employment, any given individual may not be able to do much to affect his own personal position, and may have to accept it; but individuals receiving common treatment (i. e. , favoured or unfavoured payment or employment) will tend to co-operate in collective action to protect a favoured position, or to improve an unfavourable one. 35. In the short term, inequitable distribution of income may be maintained and supported by established social and political mores and traditions which decree the rightness of relative economic hardship suffered by certain sections of the population; these states of inequity are, however, fundamentally disruptive of social cohesion since they are based upon economic exploitation of one sector of society by another, lead to social disequilibrium, and may eventually lead to forceful suppression or forceful over- throw. 36. » In the long term, social cohesion will best be gained by societies which can maintain abundant employment and accept and conform to their own real norms of equity in income dis- tribution. Even in an under-abundant economy under these conditions, social co-operation to enrich the total economy may be stimulated. Approximating Time Discretion Requirements To dichotomize time discretion requirements of the job, several methods were employed. 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