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

Block: Basics of Sales Management
Ch-6
Compensation and motivation of Sales Force
Chapte 6 r Compensation and

Motivation of Sales Force
Copyright 2010, S L Gupta
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Compensation Plans
Compensation plans for the sales force are designed to achieve several objectives. Some of these are: i. ii. iii. To assist the company in meeting its sales projections, To bring the earnings of the sales force to desired levels, To reward individual salespersons in direct proportion to their efforts and
performance.
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Attitudes towards A Compensation Plan

Salespeople Look for 1. 2. 3. 4. Adequate income for adequate performance. Superior income for superior performance. Incentives for special achievement. A base of fixed-income for security purposes. 1. 2. 3. 4. Companys Attitude No conflict, no argument on this point. None here either. All but a few reactionary companies agree. 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. No argument here, but not all companies can afford full range. As much to the companys advantage as the salespersons.
5. 6.
At least primary fringe benefits. Opportunity for advancement, promotion.
5. 6.
Cont.
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7. 8.
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Equally important for the company to measure performance. Equally important to the employer.
A yardstick to measure performance. 7. Equitable treatment to all sales 8. people; pay based on performance no free loaders, no favouritism or exploitation. 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.
9.
Just as important to the company which must rely on the morale of its sales force. The sense of security and wellbeing of sales force pay many bonuses to an employer.
10. Flexibility in a plan, sensitivity to changing conditions. 11. Simplicity easy to understand.
10. Equally important to a company. 11. The company agrees the simpler the plan, the easier and cheaper to administer it.
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Formal Compensation Process
Determine Compensation Objectives, Strategies and Tactics Determine Compensation Factors
Establish Sales Force Objectives
Appraisal and Recycling
Implement Long and Short-term Range Programmes
Measure Individual, Group and Organisational Performance
Relate Rewards to Performance
Communicate Compensation Policy

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Various Modes of Compensating the Sales Force

Salary 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
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Highly seasonal industries High-tech industries Trade salespeople Route salespeople Missionary and educational salesmen Group selling
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1.
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Strengths of the Salary Compensation Plan For the sales force 1. Simple to calculate Fixed income Job security Reduces turnover in sales force Increases authority of sales manager in controlling sales force An effective tool in case
For the company

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Group efforts are required Of business that is technical in nature Hiring new staff Of seasonal business
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The following are the weaknesses of the Salary Compensation Plan 1. For the sales force 1. Lack of incentive to excel Old sales force/under achievers tend to be overpaid
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.
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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.
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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:
Up to From Above Sales (Rs) 40,000 40,000 to 1,00,000 1,00,000 Commission Rate 2% 3% 4%
If a salespersons 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. Cont. Copyright 2010, S L Gupta
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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 Cont. whether a portion of the expense is shared with the employee.
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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.
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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. 2. 3. 4. 5. 6. What are the three most effective techniques you use for motivating your entire sales force? Do you know what motivates each person who reports to you? Do you know what role compensation plays in the motivation of each salesperson? Do you know what role recognition plays in the motivation of each salesperson? Do you know what role opportunity for growth plays in the motivation of each salesperson? Have you customised a motivational programme for each person who reports to you?
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7. What have you done in the past week with the deliberate intention of motivating a salesperson? 8. 9. 10. 11. 12. 13. Did you praise someone today? Do you show your commitment to developing each salesperson by actively (at least once a month) coaching him on skills and techniques? When a salesperson seems to be feeling stressed, do you ask questions and spend time listening to his concerns? Do you ask your representatives, What can I do personally to help your sales efforts? Do you review their monthly performance with them in a timely manner? 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. 15. Do you treat your salespeople with respect? Do you show your salespeople trust?
Source: Ginger Trumfio, Are you an Effective Motivator? Sales and Marketing Management (May 1994): 136.
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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 employees supervisor. Public recognition in front of peers. Public recognition in front of ones boss. A letter of praise from a customer or vendor praising an employee, posted on the companys 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.
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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
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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.
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Characteristics of Different Stages in a Salespersons Career Exploration Career Concern Establishment Maintenance Disengagement
Finding an Successfully appropriate establishing a career occupational field. in a certain occupation.
Holding on to what has Completing ones been achieved; career. reassessing career, with possible redirection.
Developmental Tasks
Learning the skills Using skills to required to do the produce results; job well; adjusting to working becoming a with greater contributing autonomy; member of an developing creativity organisation. and innovativeness.
Developing broader view Establishing a of work and the stronger self identity organisation; outside of work; maintaining a high maintaining an performance level. acceptable performance level.
Cont.
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Establishing a good initial professional selfconcept. Producing superior Maintaining motivation Accepting carrer result on the job in though possible rewards accomplishments; order to be promoted; have changed; facing adjusting self image. balancing the concerns about ageing conflicting demands and disappointment over of career and family. what one has accomplished; maintaining motivation and productivity.
Personal Challenges
Psychological Needs
Support peer acceptance; challenging position.
Achievement esteem; Reduced autonomy; competitiveness; competition. 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
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Importance of Motivation Theories for Sales Force

i. 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
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INTENSITY
Dimensions of Motivation
Motivation has mainly three dimensions
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. 3. Persistence: It is the extension of effort over time. Direction: It implies that the individual can choose how his or her efforts will
be spent.
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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.
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Model of the Motivation Process

The motivation process consists of six steps : 1. 2. 3. 4. 5. 6. Recognise need deficiency Search for ways to satisfy needs Establish goal-directed behaviour Performance Provide rewards or punishment Process needs.
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The Six Step Motivation Process Recognise need deficiency
Process begins
Needs reassessment SALESPERSON
Search for ways to satisfy needs
Provide punishment or rewards
Establish goal directed behaviour
Performance
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Motivation Theories
Motivation theories are approached through two main models 1. 2. Cognitive Approach/Model Non-Cognitive Approach/Model
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Cognitive Approach/Model Models of motivation which focus on internal states and mental processes are known as cognitive models.
Cognitive Models
Content Theories
Process Theories
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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. ii. iii. iv. v. vi. March and Simon Model Maslows Need Hierarchy Model Herzbergs Hygiene-Motivation Model Alderfers ERG Model McClelland Three Need Model McGregors Participation Model
Cont.
vii. Maturity and Immaturity Theory viii. Theory Z: A Hybrid Model.

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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. ii. iii. iv. v. Vrooms Expectancy Model Porter and Lawler Expectancy Model Equity Theory Self-concept Theory Vrooms Valence Expectancy Theory
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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.
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Personal factors Organisational factors Environmental factors
Learning from past experience, reward punishment, etc,
Conditional predisposition to act or not to act
Behaviour as a performance of 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 Copyright 2010, S L Gupta eliminated.
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Applications of Various Theories

Using Self-concept in Motivating Salespeople Using Maslows Theory Using Herzbergs Two Factor Theory Using McClelland Theory Using Expectancy Model
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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
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Individual Related Factors Career Stages

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Exploration Establishment Maintenance Disengagement Performing deficiencies Selection and training Redesigning job to increase intrinsic motivation Reducing stress and burnout Increasing growth opportunities Acceptance of growth opportunities
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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
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Block: Basics of Sales Management

Compensation and motivation of Sales Force

Chapte 6 r Compensation and

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Attitudes towards A Compensation Plan

At least primary fringe benefits. Opportunity for advancement, promotion.

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Cont. Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Establish Sales Force Objectives

Appraisal and Recycling

Implement Long and Short-term Range Programmes

Measure Individual, Group and Organisational Performance

Relate Rewards to Performance

Communicate Compensation Policy

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Various Modes of Compensating the Sales Force

Sales and Distribution Management

Block: Basics of Sales Management

Compensation and motivation of Sales Force

For the company

Sales and Distribution Management

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Cont. Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Motivation to the Sales Force