Motivation and Reward System Management Module Eight

Motivation and Rewards An Expert’s Viewpoint: Optimus Solutions has a substantial motivation and reward system. The sales reps receive a 10% - 25% commission on every dollar of profit they generate. The more profit sales reps generate, the more they earn. In addition, any rep that reaches an aggressive, yet obtainable, annual sales goal of $1 million during a 12-month period receives a one-year lease on a Porsche 911. Action

Motivation and Rewards An Expert’s Viewpoint: The company’s system for motivating and rewarding its salespeople has been very successful. Five people qualified for the Porsche in 2000, and eight qualified in The company has grown to more than $100 million in revenues in just four years Result

Motivation The force within us that activates our behavior. It is a function of three distinct components, Intensity, Direction, and Persistence. IntensityPersistenceDirection MotivationMotivation

Motivation - Intensity Intensity refers to the amount of mental and physical effort put forth by the salesperson. PersistenceDirection MotivationMotivation Intensity

Motivation - Direction The extent to which an individual determines and chooses efforts focused on a particular goal. IntensityPersistence Direction MotivationMotivation

Motivation - Persistence The extent to which the goal-directed effort is put forth over time. Intensity Persistence Direction MotivationMotivation

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.

Optimal Sales Force Reward System 1.Provides an acceptable ratio of costs and sales force output in volume, profit, or other objectives 2.Encourages specific activities consistent with the firm's overall, marketing, and sales force objectives and strategies 3.Attracts and retains competent salespeople, thereby enhancing long-term customer relationships 4.Allows the kind of adjustments that facilitate administration of the reward system.

Types of Sales Force Rewards MotivationIntrinsicExtrinsicPay Promotion Sense of Accomplishment Personal Growth Opportunities Recognition Job security

Financial Compensation: Straight Salary Advantages -Salaries are simple to administer -Planned earnings are easy to project. -Salaries can provide control over salespeople’s activities, and reassignments are less of a problem. -Salaries are useful when substantial development work is required. Disadvantages -Salaries offer little incentive for better performance. -Salary compression could cause perceptions of inequity among experiences salespeople. -Salaries represent fixed overhead.

Financial Compensation: Straight Commission Advantages -Income is linked directly to desired results. -Straight commission plans offer cost-control benefits. Disadvantages -Straight commission plans contribute little to company loyalty. -Problems may also arise if commissions are not limited by an earnings cap.

Straight Commission: Plan Variations 1.Commission base — volume or profitability 2.Commission rate — constant, progressive, or a combination 3.Commission splits — between two or more salespeople or between salespeople and the employer 4.Commission payout event — when the order is confirmed, shipped, billed, paid for, or some combination of these events

Straight Commission: Rates Constant rates: –Rates that remain unchanged over the pay period. Pay is linked directly to performance. Progressive rates: –Rates that increase as salespeople reach pre- specified targets. Regressive rates: –Rates that decline at some predetermined point.

Financial Compensation: Performance Bonuses Advantages -Organization can direct emphasis to what it considers important in the sales area. -Bonuses are particularly useful for tying rewards to accomplishment of objectives. Disadvantages -It may be difficult to determine a formula for calculating bonus achievement if the objective is expressed in subjective terms. -If salespeople do not fully support the established objective, they may not exert additional effort to accomplish the goal.

Financial Compensation: Combination Plans Advantages -Combination pay plans are flexible. -They are also useful when the skill levels of the salesforce vary. -Combination pay plans are attractive to high- potential but unproven candidates for sales jobs. Disadvantages -Combination pay plans are more complex and difficult to administer. -A common criticism of combination pay plans is that they tend to produce too many salesforce objectives.

Nonfinancial Compensation Opportunity for Promotion: –The ability to move up in an organization along one or more career paths Sense of Accomplishment: –The internal sense of satisfaction from successful performance –Sales managers should facilitate salespeople’s ability to feel this a sense of accomplishment

Nonfinancial Compensation Opportunity for Personal Growth: –Access to programs that allow for personal development (e.g., tuition reimbursement, leadership development seminars) Recognition: –The informal or formal acknowledgement of a desired accomplishment Job Security: –A sense of being a desired employee that comes from consistent exceptional performance

Sales Expenses 1.A definition of which expenses are reimbursable 2.The establishment of expense budgets 3.The use of allowances for certain expenditures 4.Documentation of expenses to be reimbursed Controls used in the sales expense reimbursement process include:

Additional Issues in Managing Salesforce Reward Systems Sales ContestsSales Contests Equal PayEqual Pay Team CompensationTeam Compensation Global ConsiderationsGlobal Considerations Changing the Reward SystemChanging the Reward System

Sales Contests: Recommended Guidelines 1.Minimize potential motivation and morale problems by allowing multiple winners. Salespeople should compete against individual goals and be declared winners if those goals are met. 2.Recognize that contests will concentrate efforts in specific areas, often at the temporary neglect of other areas. Plan accordingly.

Sales Contests: Recommended Guidelines 3.Consider the positive effects of including nonselling personnel in sales contests. 4.Use variety as a basic element of sales contests. Vary timing, duration, themes, and rewards. 5.Ensure that sales contest objectives are clear, realistically attainable, and quantifiable to allow performance assessment.

Guidelines for Motivating and Rewarding Salespeople 1.Recruit and select salespeople whose personal motives match the requirements and rewards of the job. 2.Attempt to incorporate the individual needs of salespeople into motivational programs. 3.Use job design and redesign as motivational tools

Guidelines for Motivating and Rewarding Salespeople 4.Provide adequate job information and assure proper skill development for the sales force. 5.Concentrate on building the self-esteem of salespeople. 6.Take a proactive approach to seeking out motivational problems and sources of frustration in the salesforce.