Sales Management 12 Motivation and Rewards

Motivation Motivation: Intrinsic vs. Extrinsic When rewards such as pay and formal recognition act as motivators When doing the job is inherently motivating IntrinsicExtrinsic

Noncompensation rewards: Those beneficial factors related to the work situation and well-being of each salesperson. Two Basic Categories of Rewards Compensation rewards: Those given in return for acceptable performance or effort. They can include nonfinancial compensation.

Types of Sales Force Rewards Motivation _______ __ Pay Promotion Sense of Accomplishment Personal Growth Opportunities Recognition Job security

Aptitude: Enduring personal that determine individual’s overall ability to perform a sales job Enduring personal _________ that determine individual’s overall ability to perform a sales job Variables Variables Intelligence Intelligence Cognitive Abilities Cognitive Abilities Verbal Intelligence Verbal Intelligence Math Abilities Math Abilities Sales Aptitude Sales Aptitude

Personality Enduring personal traits that reflect an individual’s to situations encountered in the environment. Enduring personal traits that reflect an individual’s _________ _________ to situations encountered in the environment. Variables Variables Responsibility Responsibility Dominance Dominance Sociability Sociability Self-Esteem Self-Esteem Creativity/Flexibility Creativity/Flexibility Need for Achievement/Intrinsic Rewards Need for Achievement/Intrinsic Rewards Need for Power/Extrinsic Rewards Need for Power/Extrinsic Rewards

Skill Individual’s learned at performing necessary tasks. Individual’s learned _________ at performing necessary tasks. NB: Skills can be trained! NB: Skills can be trained! Variables Variables Vocational skills Vocational skills Sales Presentation skills Sales Presentation skills Interpersonal skills Interpersonal skills General Management General Management Vocational Esteem Vocational Esteem

Sales Role Perceptions Role _________: Knowing what is expected Role _________: Knowing what is expected Role _________: Incompatible demands from different role partners (firm, boss, customer, family) Role _________: Incompatible demands from different role partners (firm, boss, customer, family) Role _________: Believe that they don’t know what is expected, how they should meet expectations, or how they will be evaluated & rewarded Role _________: Believe that they don’t know what is expected, how they should meet expectations, or how they will be evaluated & rewarded

Sales Role Perceptions II: Consequences Role Inaccuracy, Conflict, and Ambiguity lead to: Role Inaccuracy, Conflict, and Ambiguity lead to: Dissatisfaction Dissatisfaction Mental Anxiety Mental Anxiety Salesperson Turnover Salesperson Turnover Absenteeism Absenteeism Poor Job Performance Poor Job Performance

Sales Role Perceptions III: Improvement Close (not stifling) supervision Close (not stifling) supervision Training Training Salesperson experience Salesperson experience Include salesperson when establishing expectations Include salesperson when establishing expectations

Sales Quotas Goals assigned to salespeople for specific time period. Goals assigned to salespeople for specific time period. Three Purposes Three Purposes _________salespeople _________salespeople _________performance _________performance _________salespeople’s effort _________salespeople’s effort

Problems with Quotas Not apples/apples Not apples/apples Different levels of difficulty in territories Different levels of difficulty in territories May be tough to apply to teams May be tough to apply to teams Can be expensive to establish Can be expensive to establish If not done well, may focus efforts too much in one area. If not done well, may focus efforts too much in one area.

Characteristics of Good Quotas _________ _________ Motivation requires reasonable chance of attainment Motivation requires reasonable chance of attainment Easy to _________ Easy to _________ Too complex  suspicion and mistrust Too complex  suspicion and mistrust _________ _________ Cover all criteria to avoid imbalance Cover all criteria to avoid imbalance

Types of Quotas Volume Volume Units, Dollars, Points Units, Dollars, Points Activity Activity # cold calls, proposals, displays, service calls, meetings, collections, demonstrations # cold calls, proposals, displays, service calls, meetings, collections, demonstrations Financial Financial Expenses, Gross Margins, Net Profit Expenses, Gross Margins, Net Profit

How to Set Quotas Volume Volume History History Territory Potential Territory Potential Activity Activity Sales reps and managers; sales reports; research Sales reps and managers; sales reports; research Financial Financial Based on financial goals of firm Based on financial goals of firm Adjust to meet needs Adjust to meet needs

Performance Criteria Total Sales Volume; Increase over last year. Total Sales Volume; Increase over last year. Percentage of Quota Attainment. Percentage of Quota Attainment. Selling Expenses; Decrease from last year. Selling Expenses; Decrease from last year. Profitability of sales; Increase over last year Profitability of sales; Increase over last year New Accounts New Accounts Improved administrative duties (paperwork) Improved administrative duties (paperwork) Improvements in customer service Improvements in customer service

Rewards Money: salary, bonus, commission Money: salary, bonus, commission Promotion Promotion Non-financial: (Contests, travel, prizes, etc.) Non-financial: (Contests, travel, prizes, etc.) Special Recognition (clubs, awards, etc.) Special Recognition (clubs, awards, etc.) Job security Job security Feeling of self-fulfillment Feeling of self-fulfillment Feeling of worthwhile accomplishment Feeling of worthwhile accomplishment Opportunity for personal growth and development Opportunity for personal growth and development Opportunity for independent thought/action Opportunity for independent thought/action

Motivation Motivation leads to effort. Motivation leads to effort. Effort leads to performance. Effort leads to performance. What leads to motivation? What leads to motivation?

Motivation

ExpectancyInstrumentalityValenceMotivation Unmotivated Yes High Yes No Low Expectancy Theory

Expectation Expectation Effort  Effort  _________ Instrumentality Instrumentality  Reward _________  Reward Valence Valence Reward has Reward has _________ Must have all 3 to be motivated! Must have all 3 to be motivated!

Expectation Must expect that effort will lead to performance outcome Practice ≠ Jimi Studying = Knowledge

Instrumentality Results must be instrumental in achieving reward

Valence Low Valence High Valence

Expectancy Theory in Sales If I make ten cold calls/day, I will get 2-3 new customers per week, leading to higher sales. If I make ten cold calls/day, I will get 2-3 new customers per week, leading to higher sales. If I get 2-3 new customers/week and have higher sales, I will make more commi$$ion$. If I get 2-3 new customers/week and have higher sales, I will make more commi$$ion$. I like money. I want to make more, so I am motivated to make the cold calls. I like money. I want to make more, so I am motivated to make the cold calls. Note: People have different values, so they are motivated by different rewards.

Major Issues People have different personal characteristics and different valances for various kinds of rewards. People have different personal characteristics and different valances for various kinds of rewards. Ideally want to have unique compensation program for each person. Ideally want to have unique compensation program for each person. It ain’t gonna happ’n!!!! It ain’t gonna happ’n!!!! Too complex to administer Too complex to administer Question of fairness Question of fairness Changes over time Changes over time Need to update continuously Need to update continuously

Designing a Compensation Plan Compensation plan is intended to have the sales force do what management wants, how it wants it, and within the desired time. Compensation plan is intended to have the sales force do what management wants, how it wants it, and within the desired time. First, need to decide what it is that management wants. First, need to decide what it is that management wants.

Assessing Situation/Objectives How are salespeople allocating time? How are salespeople allocating time? How good are the current outcomes? How good are the current outcomes? Job Analysis Job Analysis Recruitment and selection Recruitment and selection Company records Company records Company marketing & sales objectives Company marketing & sales objectives Account management Account management

What do you reward? Performance outcomes Performance outcomes Behaviors Behaviors Need to align the sales forces’ objectives with that of the company. Need to align the sales forces’ objectives with that of the company. Can strive to achieve multiple objectives, but not too many at once. Can strive to achieve multiple objectives, but not too many at once. Use mixed-incentive plan Use mixed-incentive plan

Behaviors & Activities to Reward Higher $ volume sales Higher $ volume sales Increase sales of more profitable items Increase sales of more profitable items Push new products Push new products Higher penetration: products, customers Higher penetration: products, customers Larger average order size Larger average order size New customers New customers Service/Maintain existing customers Service/Maintain existing customers Retain customers Retain customers Encourage team cooperation Encourage team cooperation Balanced (full-line) selling Balanced (full-line) selling Lower sales costs Lower sales costs Increase calls Increase calls Prompt paperwork Prompt paperwork

Valance Need to determine what drives the current sales force at this time. Need to determine what drives the current sales force at this time. Survey Survey Conjoint analysis Conjoint analysis Managers don’t necessarily have an accurate perception of their salespeople’s valances for different rewards. Managers don’t necessarily have an accurate perception of their salespeople’s valances for different rewards.

Appropriate Compensation Mix Determine gross amount necessary to attract, retain, and motivate right type of salespeople. Determine gross amount necessary to attract, retain, and motivate right type of salespeople. Then allocate to salary, commission, bonus, benefits, prizes. Then allocate to salary, commission, bonus, benefits, prizes. Varies with type of sales job, size of company and sales force, and policies. Varies with type of sales job, size of company and sales force, and policies. What do competitors pay? What do competitors pay? Pay low, high, or average? Pay low, high, or average?

Dangers of Paying Too Much Increases selling costs  lowers Increases selling costs  lowers ______ Can cause and low among non-sales employees and managers Can cause _________ and low _________ among non-sales employees and managers Not necessarily a motivator Not necessarily a motivator Maslow Maslow Prospect Theory Prospect Theory

Dangers of Paying Too Little You get what you pay for. You get what you pay for. Attract only weak people Attract only weak people Leads to poor results Leads to poor results High turnover, especially among good people. Only the less capable will stay. High turnover, especially among good people. Only the less capable will stay. Leads to higher costs for recruiting, and training. Leads to higher costs for recruiting, and training. Lost sales Lost sales Managers always recruiting and hiring Managers always recruiting and hiring

Compensation Components _________ _________ _________ _________ _________ _________

Compensation: Commission Payment based on short-term results Payment based on short-term results Usually a % of $ sales, or $/volume Usually a % of $ sales, or $/volume Direct link between performance and payment Direct link between performance and payment Motivates high level of selling effort Motivates high level of selling effort Encourages sales success Encourages sales success

Compensation: Salary Fixed sum of money paid at set intervals Fixed sum of money paid at set intervals How most of the country is paid How most of the country is paid Function of experience, competence, tenure, past performance Function of experience, competence, tenure, past performance Motivate effort on non-sales activities Motivate effort on non-sales activities Adjust for differences in territory potential Adjust for differences in territory potential Motivate investment in long-term sale Motivate investment in long-term sale

Compensation: Incentive/Bonus Additional commission tied to sales or profitability (e.g. + 1% after $2,000,000) Additional commission tied to sales or profitability (e.g. + 1% after $2,000,000) Bonus for meeting or exceeding target Bonus for meeting or exceeding target Direct effort to strategic objectives Direct effort to strategic objectives Provide additional rewards to top performers Provide additional rewards to top performers Encourage sales success Encourage sales success

Compensation: Sales Contests Encourage extra effort at specific short- term objectives Encourage extra effort at specific short- term objectives Can offer: Can offer: Cash Cash Merchandise (TV, Car, Shopping, Golf, Dinner) Merchandise (TV, Car, Shopping, Golf, Dinner) Travel (Can also be a team building event) Travel (Can also be a team building event) Offer multiple opportunities for prizes Offer multiple opportunities for prizes Needs to be achievable to be motivating Needs to be achievable to be motivating Cannot be too easy, or won’t be motivating Cannot be too easy, or won’t be motivating

Compensation: Benefits Health insurance, sometimes disability and life insurance Health insurance, sometimes disability and life insurance Pension plan Pension plan Not everyone offers, especially if contract (real estate agent) or manufacturer’s rep Not everyone offers, especially if contract (real estate agent) or manufacturer’s rep Salespeople are then forced to buy plans through professional associations Salespeople are then forced to buy plans through professional associations Provides security, especially important to people with families, or getting older Provides security, especially important to people with families, or getting older

Compensation Plans Straight Salary Straight Salary Straight Commission Straight Commission Combination Plan (most common) Combination Plan (most common)

Straight Salary If non-short-term sales goals are important If non-short-term sales goals are important If difficult to measure individual’s contribution to the sales effort (missionary, team selling) If difficult to measure individual’s contribution to the sales effort (missionary, team selling) Provide salespeople with steady income Provide salespeople with steady income Easy to manage and administer Easy to manage and administer $ not tied to performance $ not tied to performance Lowers/clouds instrumentality Lowers/clouds instrumentality No motivation to perform No motivation to perform

Straight Commission Direct link between selling and reward Direct link between selling and reward Motivating Motivating Inherently fair: rewards to best performers Inherently fair: rewards to best performers Usually easy to compute/administer Usually easy to compute/administer Vary directly with sales volume & $ Vary directly with sales volume & $ Lose control over sales force Lose control over sales force No motivation for non-selling activities No motivation for non-selling activities Milk existing customers, no service Milk existing customers, no service Unstable income, tough to predict Unstable income, tough to predict Can establish draw, but may be deep hole Can establish draw, but may be deep hole

Combination Plans Most common form of compensation Most common form of compensation Smaller commissions, but with base salary Smaller commissions, but with base salary Can also offer bonuses for reaching target (e.g. % of quota) Can also offer bonuses for reaching target (e.g. % of quota) Can manipulate (not often, or too much) to motivate performance or activities Can manipulate (not often, or too much) to motivate performance or activities Gives salespeople both security and incentive to work hard and perform Gives salespeople both security and incentive to work hard and perform

Other Issues Appropriate size of incentive/base (25%+) Appropriate size of incentive/base (25%+) Incentive Ceiling: Arguments on both sides Incentive Ceiling: Arguments on both sides When is a sale a sale?: order acceptance, allowances or returns, shipment, payment? When is a sale a sale?: order acceptance, allowances or returns, shipment, payment? Group incentive? Allocation? Can pay both group and individual components: Linkages Group incentive? Allocation? Can pay both group and individual components: Linkages How often to pay incentive? Monthly (52%), Quarterly (24%), or Annually (21%) How often to pay incentive? Monthly (52%), Quarterly (24%), or Annually (21%)

Sales Contests Clearly define and specify the objectives Clearly define and specify the objectives Have an exciting Have an exciting _________ Have a that most/all salespeople can win a prize. Have a ________ __________ that most/all salespeople can win a prize. prizes _________ prizes Promotion and follow through Promotion and follow through sales _________ sales Hurt & Hurt _________ & _________ Necessary if good compensation plan? Necessary if good compensation plan?

Non-Financial Rewards Promotion Promotion Career Development Career Development Valence declines with age Valence declines with age Add perquisites (perks) with position: Add perquisites (perks) with position: Car Car Better working conditions (hours, facility) Better working conditions (hours, facility) Compensation, Profit-sharing Compensation, Profit-sharing