Chapter 6 Compensation and Motivation of Sales Force-Sales and Distribution Management

Copyright © 2010, S L Gupta

Excel BooksSales and Distribution Management Text & Cases (2nd Edition) S L Gupta6-1

Compensation and motivation of Sales Force

Basics of Sales Management

Ch-6

Block: I

Chapter

6Compensation andMotivation of Sales Force





Ch-6

Block: I

Compensation Plans

Compensation plans for the sales force are designed to achieve several

objectives. Some of these are:

i. To assist the company in meeting its sales projections,

ii. To bring the earnings of the sales force to desired levels,

iii. To reward individual salespersons in direct proportion to their efforts and

performance.





Ch-6

Block: I

Cont….

Attitudes towards A Compensation PlanSalespeople Look for Company’s Attitude

1. Adequate income for adequate performance.

1. No conflict, no argument on this point.

2. Superior income for superior performance.

2. None here either.

3. Incentives for special achievement.

3. All but a few reactionary companies agree.

4. A base of fixed-income for security purposes.

4. Many companies agree, but some cannot afford a fixed expense such as salary. In certain industries compensation ranges from 100 per cent salary to 100 per cent commission. Company attitude will depend on circumstances peculiar to it.

5. At least primary fringe benefits. 5. No argument here, but not all companies can afford full range.

6. Opportunity for advancement, promotion.

6. As much to the company’s advantage as the salesperson’s.





Ch-6

Block: I

Cont….

7. A yardstick to measure performance.

7. Equally important for the company to measure performance.

8. Equitable treatment to all sales people; pay based on performance — no free loaders, no favouritism or exploitation.

8. Equally important to the employer.

9. A sense of security because of the feeling that he is respected and regarded as a human being who is important to the company.

9. Just as important to the company which must rely on the morale of its sales force. The sense of security and well-being of sales force pay many bonuses to an employer.

10. Flexibility in a plan, sensitivity to changing conditions.

10. Equally important to a company.

11. Simplicity — easy to understand. 11. The company agrees — the simpler the plan, the easier and cheaper to administer it.





Ch-6

Block: I

Formal Compensation Process

Establish Sales Force Objectives

Appraisal and Recycling

Measure Individual, Group

and Organisational Performance

Determine Compensation

Objectives, Strategies and Tactics

Determine Compensation

Factors

Implement Long and Short-term Range

Programmes

Communicate Compensation Policy

Relate Rewards to Performance





Ch-6

Block: I

Cont….

Various Modes of Compensating the Sales ForceSalary

A straight salary payroll is by far the easiest for employers to handle. Deductions for provident fund, income taxes and other fringe benefits are fixed and the work of accounting is reduced. In many industries, this method of compensation is generally used. There is always an overriding reason for choosing a salary plan. The following industries are using this method

Highly seasonal industries

High-tech industries

Trade salespeople

Route salespeople

Missionary and educational salesmen

Group selling





Ch-6

Block: I

Cont….

Strengths of the Salary Compensation Plan

1. For the sales force

Simple to calculate

Fixed income

Job security

2. For the company

Reduces turnover in sales force

Increases authority of sales manager in controlling sales force

An effective tool in case

• Group efforts are required

• Of business that is technical in nature

• Hiring new staff

• Of seasonal business





Ch-6

Block: I

Cont….

The following are the weaknesses of the Salary Compensation Plan

1. For the sales force

Lack of incentive to excel

Old sales force/under achievers tend to be overpaid

2. For the company

Fixed expenses, difficult to cut down expenses

Frequent adjustments in salary necessary, yet too many changes are as

bad as too few

Requires excellent supervision which is not always available.





Ch-6

Block: I

Cont….

Straight Commission

Paying a commission is a variable expense rather than a fixed one. If sales are

made, a commission is paid — no sales, no commission. This keeps sales

expenses strictly in line. A straight commission pay plan has many advantages. It

is desirable for a company suffering from a severe cash shortage since the

commission need not be paid until proceeds are received from a sale. Flexible

commission rates can be a strong incentive and many organisations are

successful because the sales force enjoys a liberal commission schedule.





Ch-6

Block: I

Cont….

Target Commission

A straight commission is paid on sales volume. On a fixed commission base, a fixed percentage of sales volume is paid to the sales force. Other plans call for increase in rate as volume increases. A fixed rate commission is easy to figure and administer. If the rate is 2 per cent, it stays at that percentage whether the salesperson sells goods worth Rs 40,000 or Rs 4,00,000. A progressive commission rate accomplishes a major objective of most companies: it provides a constant incentive to the sales force to do better. The following example explains this:

Sales (Rs) Commission Rate

Up to 40,000 2%

From 40,000 to 1,00,000 3%

Above 1,00,000 4%

If a salesperson’s quota is Rs 80,000, he would earn Rs 2,000 if he achieved that target exactly — a composite rate of 2.5 per cent. For example: Smith Kline Beecham is using this method in their worldwide selling.





Ch-6

Block: I

Cont….

Bonus, Profit Sharing, Fringe Benefits

Paying bonus is a method that a company adopts to reward special contribution

and as an incentive to superior performance.

Profit Sharing

Many experts in the field of sales management disapprove extending profit

sharing to salespeople. For once, companies agree with them. There may be an

argument in favour of such a payment if no bonus plan is established for

excellence in sales performance.

Fringe Benefits

Fringe benefits have become a fascinating subject and an item of considerable

expense to organisations. The costs of fringes can be as high as 30 per cent of

direct compensation expense depending on what benefits are offered and

whether a portion of the expense is shared with the employee.





Ch-6

Block: I

Reimbursement of Expenses

Travel — usually by car or scooter

Meals

Lodging

Entertainment

Miscellaneous

Proper Sales Compensation Plan

Provide a living wage

Have performance Based pay levels

Be adjustable to meet companys’ goals and individual aspirations.

Such a plan not only helps in normal times but also takes care of special

needs of a company.





Ch-6

Block: I

Cont….

Motivation to the Sales Force Motivation is the force within us that directs our behaviour.

A sales manager can use the question guidelines suggested by Ginger

Trumfio for motivating his salespersons.

Are you an Effective Motivator?

Keeping your sales force motivated is vital to execute ongoing sales. How effectively do you motivate your salespeople? Answer the following questions and you be the judge.

1. What are the three most effective techniques you use for motivating your entire sales force?

2. Do you know what motivates each person who reports to you?

3. Do you know what role compensation plays in the motivation of each salesperson?

4. Do you know what role recognition plays in the motivation of each salesperson?

5. Do you know what role “opportunity for growth” plays in the motivation of each salesperson?

6. Have you customised a motivational programme for each person who reports to you?





Ch-6

Block: I

Cont….

7. What have you done in the past week with the deliberate intention of motivating a salesperson?

8. Did you praise someone today?

9. Do you show your commitment to developing each salesperson by actively (at least once a month) coaching him on skills and techniques?

10. When a salesperson seems to be feeling stressed, do you ask questions and spend time listening to his concerns?

11. Do you ask your representatives, “What can I do personally to help your sales efforts?”

12. Do you review their monthly performance with them in a timely manner?

13. Have you done anything recently to “demotivate” your salespeople?

For example: failed to give recognition; embraced a salesperson in front of peers or clients; taken over a sales call?

14. Do you treat your salespeople with respect?

15. Do you show your salespeople trust?

Source: Ginger Trumfio, “Are you an Effective Motivator?” Sales and Marketing Management (May 1994): 136.





Ch-6

Block: I

Cont….

Low-Cost Ways to Motivate

A pat on the back. A smile. A simple, sincere, thank you. A personal letter to the employee, with copies sent to your immediate supervisor and to the

employee’s supervisor. Public recognition in front of peers. Public recognition in front of one’s boss. A letter of praise from a customer or vendor praising an employee, posted on the company’s bulletin board. Listening to an employee who has an idea for improving efficiency and then acting affirmatively on that suggestion. Arranging employee discounts from your vendors or customers. Allowing the employee to work on an especially exciting project that he or she would not

usually work on. Asking employees what non-monetary rewards they would like to have and, if possible,

providing them. Issuing a “You Were Mentioned” certificate to employees whenever you hear something nice about them, whether from a customer, co-worker, or superior.





Ch-6

Block: I

Electing a high-achieving employee to a quality circle or to a company wide task force.

Providing free lunch for employees caught in the act of victory by an appointed group of

company wide “catchers”

Rotating the “company flag” or other symbols of excellence from one deserving unit to

another on a quarterly basis.

Source: Sam Deep, Lyle Sussman, Smart Moves Reading, Mass: Addison-Wesley, 1990





Ch-6

Block: I

Cont….

Sales Career Stages and Motivation

Are salespersons motivated by different rewards at different stages of their

career? Do salespeople have different career and personal concerns based

on career stages? The basic answer to both these questions is ‘Yes’.

There are four career stages: exploration, establishment, maintenance and

disengagement.





Ch-6

Block: I

Cont….

Characteristics of Different Stages in a Salesperson’s Career

Exploration Establishment Maintenance Disengagement

Career Concern Finding an

appropriate

occupational

field.

Successfully

establishing a

career in a certain

occupation.

Holding on to what

has been achieved;

reassessing career,

with possible

redirection.

Completing one’s

career.

Developmental

Tasks

Learning the

skills required

to do the job

well; becoming

a contributing

member of an

organisation.

Using skills to

produce results;

adjusting to

working with

greater autonomy;

developing

creativity and

innovativeness.

Developing broader

view of work and the

organisation;

maintaining a high

performance level.

Establishing a

stronger self

identity outside of

work; maintaining

an acceptable

performance level.





Ch-6

Block: I

Personal Challenges

Establishing a good initial professional self-concept.

Producing superior result on the job in order to be promoted; balancing the conflicting demands of career and family.

Maintaining motivation though possible rewards have changed; facing concerns about ageing and disappointment over what one has accomplished; maintaining motivation and productivity.

Accepting carrer accomplishments; adjusting self image.

Psychological Needs

Support peer acceptance; challenging position.

Achievement esteem; autonomy; competition.

Reduced competitiveness; security; helping younger colleagues.

Detachment from organisation and organisational life.

Source: Adapted from William L Cron, “Industrial Salesperson Development: A Career Stages Perspective”, Journal of Marketing (Fall 1984) 40; and William L Cron, Alan J Dubinsky, and Ronald E Michales, “The influence of Career Stages on Components of Salesperson Motivation”, Journal of Marketing (January 1988); 79-92





Ch-6

Block: I

Importance of Motivation Theories for Sales Forcei. Nature of Job: A sales representatives’ job is usually tiring with irregular working hours. They do not often have the authority to do what is necessary to win an account and they sometimes lose large orders that they have worked hard to obtain.

ii. Human Nature: Most people operate below capacity in the absence of special incentives, such as financial gain or social recognition.

iii. Personal Problems: They are occasionally preoccupied with personal problems, such as sickness in the family, debt, etc.

High productivity in a sales force comes about neither naturally nor accidentally. It requires motivation.

The problem of motivating sales representatives has been studied by Churchill, Ford & Walker. They propose the following way.

MOTIVATION EFFORT PERFORMANCE REWARDS SATISFACTION





Ch-6

Block: I

Cont….

Dimensions of Motivation

Motivation has mainly three dimensions

INTENSITY

PERSISTENCE

DIRECTION

1. Intensity: It is the magnitude of mental and physical effort put in by a

salesperson for his or her activity or goal.

2. Persistence: It is the extension of effort over time.

3. Direction: It implies that the individual can choose how his or her efforts will

be spent.





Ch-6

Block: I

Motivation Can Also be Intrinsic or Extrinsic

Intrinsic motivation means that individuals are motivated internally by a

desire to please themselves or merely by the satisfaction of performing a job.

Extrinsic motivation means that someone else provides the motivation

through methods such as pay, promotion or recognition.





Ch-6

Block: I

Cont….

Model of the Motivation Process

The motivation process consists of six steps :

1. Recognise need deficiency

2. Search for ways to satisfy needs

3. Establish goal-directed behaviour

4. Performance

5. Provide rewards or punishment

6. Process needs.





Ch-6

Block: I

The Six Step Motivation Process

Process begins Recognise need

deficiency

Search for ways to satisfy needs

Establish goal directed behaviour

Performance

Provide punishment or rewards

Needs reassessment

SALESPERSON





Ch-6

Block: I

Cont….

Motivation Theories

Motivation theories are approached through two main models

1. Cognitive Approach/Model

2. Non-Cognitive Approach/Model





Ch-6

Block: I

Cont….

Cognitive Approach/Model

Models of motivation which focus on internal states and mental processes are

known as cognitive models.

Cognitive Models

Process Theories Content Theories





Ch-6

Block: I

Cont….

Content Theories

These theories answer the question ‘What motivates people?, To answer such a question most of the theories under this category focus on human needs and desires that are internalised and that give impetus to individual behaviour.

Some of the theories which are:

i. March and Simon Model

ii. Maslow’s Need Hierarchy Model

iii. Herzberg’s Hygiene-Motivation Model

iv. Alderfer’s ERG Model

v. McClelland Three Need Model

vi. McGregor’s Participation Model

vii. Maturity and Immaturity Theory

viii. Theory Z: A Hybrid Model.





Ch-6

Block: I

Cont….

Process Theories

These theories answer the question, “How are people motivated?” To answer

this, most of the theories under this category focus on the dynamics of major

variables that are interrelated in explaining the direction, degree and persistence

of effort in human behaviour. Some of the theories which are described under this

category are:

i. Vroom’s Expectancy Model

ii. Porter and Lawler Expectancy Model

iii. Equity Theory

iv. Self-concept Theory

v. Vroom’s Valence Expectancy Theory





Ch-6

Block: I

Cont….

Non-cognitive Approach

This approach concentrates on operating conditions, i.e., “Behaviour is a result of

its consequences” and is explained through the Reinforcement Theory.

Reinforcement Theory

This theory is based on the operating conditions that behaviour is a result of its

consequences. It has been developed by well-known psychologist, A F Skinner.

According to him, individuals, having learnt from the past, develop patterns of

behaviour to control future consequences.





Ch-6

Block: I

Personal factorsOrganisational factorsEnvironmental factors

Learning from pastexperience, rewardpunishment, etc,

Conditional predispositionto act or not to act

Behaviour as a performanceof conditioned learning

The main strategies of this theory are: Positive Reinforcement: Entails the use of rewards that stimulate repetitive behaviour.

Negative Reinforcement: Also known as avoidance learning and implies the use of unpleasant consequences to condition individuals to avoid undesirable behaviour.

Extinction: This is withdrawal of all forms of reinforcement to remove or extinguish undesirable behaviour.

Punishment: This tool is used when an unpleasant behaviour needs to be reduced or eliminated.





Ch-6

Block: I

Cont….

Applications of Various Theories

Using Self-concept in Motivating Salespeople

Using Maslow’s Theory

Using Herzberg’s Two Factor Theory

Using McClelland Theory

Using Expectancy Model





Ch-6

Block: I

Cont….

Other Factors of Motivation

Job Related Factors The Job Itself

Skill variety Task identity Task significance Job autonomy Job feedback

Leadership Job Organisational and Involvement Commitment

Job involvement Organisational commitment Institutional stars Corporate citizens Apathetics





Ch-6

Block: I

Individual Related Factors

Career Stages

Exploration

Establishment

Maintenance

Disengagement

Career Plateauing

Performing deficiencies

Selection and training

Redesigning job to increase intrinsic motivation

Reducing stress and burnout

Increasing growth opportunities

Acceptance of growth opportunities





Ch-6

Block: I

Non-financial Factors and their Impact on Sales Force

Motivation Meetings between Manager and Sales Force

Clarity of Job

Sales Contests

Sales Conferences and Conventions

Positive Feedback

Reward and Recognition

Persuasion

Observations and Future Directions

Chapter 6 Compensation and Motivation of Sales Force-Sales and Distribution Management

Documents

Transcript of Chapter 6 Compensation and Motivation of Sales Force-Sales and Distribution Management