Salespeople : Straight Salary or Commission ?

C A S E 4 - 6 National Office Machines – Motivating Japanese

Salespeople: Straight Salary or Commission?

National Office of Dayton, Ohio, manufacturers of cash registers, electronic data processing equipment, adding Machines, and other small Office equipment, has recently entered into a joint venture with Nippon Cash Machines of Tokyo, Japan, Last year National Office Machines (NOM) had domestic sales of over $1.4 billion and foreign sales of nearly $700 million. Besides in the United States, it operates in most of Western Europe, the Mideast, and some parts of the Far East. In the past, it has had no significant sales or sales force in Japan, although the company was represented there by a small trading company until a few years ago. In the United States. NOM is one of the leaders in the field and is considered to have one of the most successful and aggressive sales forces found in this highly competitive industry.

Nippon Cash Machines (NCM) is an old-line cash register manufacturing company organized in 1882. At one time, Nippon was the major manufacturer of cash register equipment in japan, but it has been losing ground sice 1970 even though it produces perhaps the best cash register in Japan. Last year’s sales were 9 billion yen, a 15 percent decrease from sales the prior year. The fact that it produces only cash registers is one of the major problems; the merger with NOM will give them much-needed breadth in product offerings. Another hoped-for strenght to be gained from the joint venture is manegerial leadership, which is sorely needed.

Fourteen Japanese companies have products that compete with Nippon; other competitors include several foreign giants such as IBM, National Cash Register, and Unisys of the United States, and Sweda Machines of Sweden. Nippon has a small sales force of 21 men, most of whom have been with the company their entire adult careers. These salespeople have been responsible for selling to Japanese trading cmpanies and to a few larger purchasers of equipment.

Part of the joint venture agreement included doubling the sales force within a year, with NOM responsible for hiring and training the new salespeople, who must all be young, college-trained Japanese Nationals. The agreement also allowed for U.S. personel in supervisory positions for an indeterminate period of time and for retaining the current Nippon saloes force.

One of the many sales management problems facing the Nippon/American Business Machines Corporation (NABMC, the name of the new joint venture) was which sales compensation plan to use. That is should it followthe Japanese tradition of straight salary and guaranteed employment until death with no individual incentive program, or the U.S. method (very successful for NOM in the United States) of commissions and various incentives based on sales performance, with the ultimate threat of being fired if sales quotas go continuously unfilled?

The immediate response to the problem might well be one of using the tried-and-true U.S. compensation methodes, since they have worked so well in the United States and ar perhaps the kind of changes needed and expected from U.S. management. NOM management is convinced that salespeople selling its kinds of products in a competitive market must have strong incentives to produce. In fact, NOM had experimented on a limited basis in the United States with straight salary about ten years ago and it was a bomb. Unfortunately, the problem os considerably more complex than it appears on the surface.

One of the facts to be faced by NOM management is the traditional labor-management relations and employment systems in Japan. The roots of the system go back to Japan’s feudal era, when a serf promised a lifetime of service to his lord in exchange for a lifetime of protection. By the start of Japan’s industrial revolution in the 1880s, an unskilled worker pledged to remain with a company all his useful life if the employer would teach him the new mechanical arts. The tradition of spending a lifetime with a single employer survives today mainly because most workers like it the way. The very foundations of Japan’s management system are based on lifetime emplyment, promotion through seniority, and single-compony unions. There is litlle chance of being fired, pay reises are regular, and there is a strict order of job-protecting seniority.

Japanese workers at larger companies still are protected from outright dismissal by union contracts and an industrial tradition that some personnel specialists believe has the force of law. Under this tradition a worker can be dismissed after an initial trial period only for gross cause, such as theft or some other major infraction. As long as the company remains in business, the worker isn’t discharged, or even furloughed, simply because there isn’t enough work to be done.

Besides the guarantee of employment for life, the typical Japanese worker receives many fringe benefits from the company. Bank loans and mortgages are granted to lifetime employees on the assumption that they will never lose their jobs and therefore the ability to repay. Just how paternalistic the typical Japanese Ministry of Foreign Affairs that gives the example of A, a male worker who is employed in a fairly representative company in Tokyo.

To begin with, A lives in a house provided by his company, and the rent he pays is

amazingly low when compared with average city rents. The company pays his daily trips

between home and factory. A’s working hours are from 9 a.m. to 5 p.m. with a break for

lunch which he usually takes in the company restaurant at a very cheap price. He often

brings home food, clothing and other miscellaneous articles he has bought at the

company store at a discount ranging from 10 percent to 30 percent below city prices. The

company store even supplies furniture, refrigerators, and television sets on an installment

basis, for which, if necessary, A can obtain a loan from the company almost free of

interest.

In case of illness, A is given free medical treatmentin the company hospital and if

his indisposition extends over a number of years, the company qill continue paying

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