Dynamics of sales compensation systems for complex sales in the semiconductor industry

Abstract

The semiconductor industry has entered a new phase where growth is in line with the rest of the economy. This change from rapid growth to average growth is forcing changes in how business is done across the industry. One area that can be inspected is incentivization and compensation of companies' sales forces. While the state of the practice in the industry is to pay commissions on sales made, research indicates that the semiconductor sales process may be more effective without commissions. This thesis uses System Dynamics modeling and simulation techniques to analyze the differences that result from different types of incentive plans for salespeople in order to test the robustness of a non-commissioned model against the more traditional commissioned model. The results show which incentive approach is more robust in the new economy. The modeling of these different incentive approaches shows that a non-commissioned sales force is superior in every scenario. While a commissioned sales force can drive growth, the sales force is less effective when paid commissions so price advantage must be used as a lever to drive sales to the level that a non-commissioned sales force can achieve. In growth, recession, and stability, a non-commissioned sales force is shown to be more effective when selling a complex product in a complex industry.