Motivation and Rewards Sales Management 12 Motivation and Rewards

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

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

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

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

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

Sales Role Perceptions I Role Accuracy: Knowing what is expected Role Conflict: Incompatible demands from different role partners (firm, boss, customer, family) Role Ambiguity: 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: Dissatisfaction Mental Anxiety Salesperson Turnover Absenteeism Poor Job Performance

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

Sales Quotas Goals assigned to salespeople for specific time period. Three Purposes Motivate salespeople Evaluating performance Controlling salespeople’s effort

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

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

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

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

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

Rewards I Money: salary, bonus, commission Promotion Non-financial: (Contests, travel, prizes, etc.) Special Recognition (clubs, awards, etc.) Job security

Rewards II Feeling of self-fulfillment Feeling of worthwhile accomplishment Opportunity for personal growth and development Opportunity for independent thought/action

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

Motivation

Expectancy Theory Expectancy Instrumentality Valence Motivation High Yes Yes No No Low Unmotivated

Expectancy Theory Expectation Instrumentality Valence Effort  Outcome Instrumentality Outcome  Reward Valence Reward has Value Must have all 3 to be motivated!

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

Instrumentality Results must be instrumental in achieving reward

Valence High Valence Low 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 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. Note: People have different values, so they are motivated by different rewards.

Compensation and Incentive Programs

Major Issues People have different personal characteristics and different valances for various kinds of rewards. Ideally want to have unique compensation program for each person. It ain’t gonna happ’n!!!! Too complex to administer Question of fairness Changes over time 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. First, need to decide what it is that management wants.

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

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

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

Valance Need to determine what drives the current sales force at this time. Survey Conjoint analysis 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. Then allocate to salary, commission, bonus, benefits, prizes. Varies with type of sales job, size of company and sales force, and policies. What do competitors pay? Pay low, high, or average?

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

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

Compensation Components Commission Salary Incentive/Bonus Benefits Sales Contests

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

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

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

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

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

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

Straight Salary Advantages If non-short-term sales goals are important If difficult to measure individual’s contribution to the sales effort (missionary, team selling) Provide salespeople with steady income Easy to manage and administer

Straight Salary Disadvantages $ not tied to performance Lowers/clouds instrumentality No motivation to perform

Straight Commission Advantages Direct link between selling and reward Motivating Inherently fair: rewards to best performers Usually easy to compute/administer Vary directly with sales volume & $

Straight Commission Disadvantages Lose control over sales force No motivation for non-selling activities Milk existing customers, no service Unstable income, tough to predict Can establish draw, but may be deep hole

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

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

Sales Contests Criteria for Success Clearly define and specify the objectives Have an exciting theme Have a reasonable probability that most/all salespeople can win a prize. Attractive prizes Promotion and follow through

Sales Contests Disadvantages Borrowed sales Hurt cohesiveness & morale Necessary?

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