Compensation & Motivation Session 7-8 Compensation & Motivation

Sales Force Compensation Plans Compensation is defined as all monetary payments and benefits used to remunerate employees for their performance. As extrinsic rewards, compensation plans and financial packages are recognized as the greatest motivator of salespeople.

Compensation 3 basic questions drive successful compensation programs: Which method is most appropriate for motivating specific selling activities? How much of a salesperson’s total compensation should be through incentives? What is the right mix of financial / non-financial compensations?

Compensation Compensation is based on expectancy model. It should try to adjust pay levels to performance. Steps in designing a compensation plan are: Define the sales job – evaluate job descriptions & specifications Compare patterns in community and industry Determine the compensation level – value of person, affordability, break-even for every job. Also see what is the average salary at the same level in the organization.

Features of Good Compensation Plans Standpoint of the firm control over how salespeople allocate their time economic balancing of sales costs and sales results motivational for salespeople to increase effort simple to administer and explain, and flexible to adjust Features of good compensation plans income regularity reward for superior performance fairness Standpoint of sales representatives

Compensation Plans Various compensation plans are applied: Direct– Fixed salary, incentives. Indirect – Salary + commission, full commission, salary + profit sharing Non Financial– Training, awards, contests, recognition Expenses - Conveyance, TA/DA, communication Various other time-bound incentives Fringe benefits

(contd.) Straight salary 1) to motivate people to achieve objectives other than short-run sales goals and 2) individual’s impact on sales volume is difficult to measure. Reward only at the time of reviews.

When Is Straight Salary Best ? team selling situations long negotiating periods mixed promotional situations during learning periods missionary selling special conditions (for example, introducing a new line of products, opening up new territories, calling on new customer accounts)

Examples for straight salary jobs missionary sales person, relationship building activities, technical products, projects (long gestation period), sales-cum-service staff (non-selling tasks are higher), delivery boys, order takers.

Contd. Straight commission – employee more like an agent (co. selling intangibles/ services or high value sales). Less administrative control and conformity to policies. Combination.

When Is Straight Commission Best ? strong incentives needed selling costs need close control Personal selling effort more important

When to Use Different Combination Plans Salary plus commissions when management wants to get high sales without sacrificing customer service for new salespeople, since it provides more security than straight commission Salary plus bonus for achieving long-run objectives, such as selling large installations or product systems or achieving a desired customer mix

When to Use Different Combination Plans Salary plus commission plus bonus for seasonal sales and frequent inventory imbalances when management wants to focus on certain products or customers Commission plus bonus for team-based efforts, in which some salespeople call on central buyers or buying committees

Combination Plan Advantages greatest flexibility and control provides security plus incentive allows frequent, immediate reinforcement of desired behaviors

Combination Plan Disadvantages can be complex and difficult to understand can be expensive to administer likely to fail if not carefully developed

Popularity of compensation plans Product / service St. salary St. comm. Combi. Consumer products 19.9% 15.1% 64.9% Consumer services 26.6 17.1 56.3 Ind. products 7.3 75.6 Ind. services 18.4 5.7 75.8 Office products 12.1 11.1 76.8 Office services 11.4 71.5

Factors influencing design of compensation PLC- introduction, growth, maturity, decline Demographic factors – 20-28 (high risk, high gain), 28-35 (fixed + variable), 35+ (stability, straight fixed salary) Role of sales in marketing strategy of the company. Competitive practices.

Which aspects of job to be rewarded Sell a greater overall value Focus on more profitable products Push new products Push selected seasonal items Achieve higher degree of market penetration Increase average order size Open new accounts Maintain existing business Reduce customer T/O Achieve full-line (range) selling Increase number of calls made Administrative discipline

Trends in Sales Compensation tying sales compensation plan to productivity and retention including customer satisfaction in the sales compensation plan adjusting international sales compensation plans to meet local conditions commission for sales managers

Motivation Getting people to work towards the achievement of objectives. To help win commitment of sales team. Need for giving motivation to sales persons- Inherent nature of the job Role conflict Monotony in some situations Working alone

Motivation – the Psychological Process Individual’s choice to: Initiate action on a certain task Expend a certain amount of effort on that task Persist in expending effort over a period of time Expectancy Theory

The psychological determinants of motivation 7-22

Bases for Motivation Expectancies – perceived linkages between more effort and improved performance Instrumentalities – perceived relationship between improved performance and increased rewards Valence for rewards – perceived intrinsic value of the rewards

Theories of Motivation A H Maslow’s Hierarchy Need hierarchy A satisfied need is no longer a motivator but the next level gains in potency. Money ceases to be a long lasting motivator after first 2 levels.

Theories of Motivation Fredrick Herzberg 2 factors theory Absence of dissatisfaction is not satisfaction 1st three levels of Maslow are hygiene factor. Fulfilling of hygiene factors – neutral point (fair day’s work).

Theories of Motivation David McClelland Achievement-Motivation theory – If a person keeps on thinking about how to accomplish something unusual & important, he has a high need for achievement.

(contd.) Apart from monitory incentives, non-monitory tools are personal meeting, clarity of job profile sales contests, conferences, reinforcement, leadership style, freedom, recognition, persuasion etc.

Motivational Tools in a Motivational Mix Financial Non Financial Financial compensation plan Salary Commission/Incentive Bonus Fringe benefits Combination Sales contests Promotion Sense of accomplishment Personal growth opportunities Recognition Job security Sales meetings Sales training programmes Job enrichment Supervision Financial compensation is the most widely used tool of motivation, as salespeople give highest value to it

Zig Ziglar on Motivation Critics say that motivation does not stick. So neither does bathing. That’s why it is recommended everyday.

Personal Characteristics Affecting Motivation Satisfaction with current rewards Demographic variables Job experience Psychological variables Personality traits Attribution of meaning to performance

Model of the determinants of a salesperson’s performance

6.3 Components of job satisfaction

Role Conflict and Ambiguity Inaccurate Role Perceptions Role Conflict Role Perceptions Role Ambiguity Consequences 6-33

Conflict and Ambiguity Different role perceptions mean different expectations Role ambiguity plagues many salespeople in some aspect of their job Salespeople often perceive conflict between company policies or expectations and customer demands

Psychological Consequences of Conflict and Ambiguity Salesperson becomes the “person in the middle” with conflicting expectations Perceived lack of necessary information causes loss of confidence Perceived role conflict and role ambiguity affect job satisfaction

Behavioral Consequences of Conflict and Ambiguity Dysfunctional behavior Increased turnover Satisfaction and performance correlate positively

Managing Conflict and Ambiguity Experience reduces role conflict Increased voice in role definition reduces role conflict Input in evaluation standards reduces ambiguity Close supervision reduces ambiguity Close supervision can increase conflict

Sales Career Path

Career Stages and Motivation Exploration – lack of assurance Establishment – selection of selling as an occupation and desire for career success Maintenance – seeking to retain present position, high status, and achievement Disengagement – preparation for retirement and possible loss of self-identity

Career stages of salespersons Exploration stage Effective tools – good training, supportive supervision, recognition, acceptance in team, monetary rewards Establishment stage Effective tools – recognition, promotions Maintenance stage Effective tools – high status, respect from peers and superiors Disengagement stage Effective tools – neither high-order nor low-order rewards motivate them

Plateauing Early disengagement Causes Solutions Lack of a clear career path Boredom Failure to manage the person effectively Solutions Clearly defined career path Promotions within sales force Job environment

Plateauing – on a lighter note When you realize how little inefficient salesmen produce, you wonder what they will retire, or are they already retired and don’t know it? It has been said that some inept salesmen die at the age of 30, but remain on the payroll and are not buried until they reach the age of 60.

Solutions for the Plateaued Salesperson Talk with salesperson about problem Discuss reasons and possible solutions Conduct motivations sessions Manage, lead and communicate Cut / increase salesperson’s responsibilities Assign to a new territory Provide time off