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Motivation and compensation

OBJECTIVES
1. Explain the key components of motivation; intensity, persistence, and direction. 2. Explain the difference between compensation rewards and non-compensation rewards. 3. Describe the primary financial and nonfinancial compensation rewards available to salespeople. 4. Describe salary, commission, and combination pay plans in terms of their advantages and disadvantages.

5. Explain the fundamental concepts in salesexpense reimbursement. 6. Discuss issues associated with sales contests, equal pay for equal work, team compensation, global compensation, and changing a reward system. 7. List the guidelines for motivating and rewarding salespeople.

What is Motivation
Motivation is the inner force that guides behavior and is concerned with the causation of specific actions.
It is the desire to spend efforts to fulfil a need. Motivation is a three-dimensional construct consisting of the following: Direction: The choice of specific actions in specific circumstances. Intensity : The magnitude of mental and physical effort the sales person spends on a given task. Persistence : it describes how long the salesperson continues to put forth the effort.

Need for Motivating the Sales Force


Change in marketing Envionment
Change in PEST

Conflicting cos objectives


Sales persons are required to achieve the cos objectives and goals such as sales volume,profits and customer satisfaction,but sumtimes these objectives conflict

Unique nature of sales Job:


Irregular timings Hostile and competing salespersons Uphill targets

Motivation

Intensity

Direction

Persistence

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

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

Motivation

Intensity

Direction

Persistence

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

Motivation

Intensity

Direction

Persistence

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

Motivation

Intensity

Direction

Persistence

What Motivates Salespeople?


Intrinsic Motivation Factors
Things that are done because the person finds doing the activity a reward in itself Intrinsically motivated people love their work and take pride in feelings of accomplishment it provides them Less concern or desire for economic or personal gains

Extrinsic Motivation Factors


External to the job and are done in order to obtain a monetary or physical reward, a social reward, or to avoid punishment Wages, incentives, awards, job title that reflects status Extrinsically motivated people focus on what they receive or dont receive for their efforts Work is not of utmost importance, its what they get for it

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Motivation: Intrinsic vs. Extrinsic


Motivation

Intrinsic
When doing the job is inherently motivating

Extrinsic
When rewards such as pay and formal recognition act as motivators

Theories of Motivation

Maslows Need Hierarchy Theory Hertzbergs Dual Factor Theory Vrooms Expectancy Theory Churchill, Ford & Walkers Modal

Understanding What Motivates Sales Reps: Content Approaches


Maslows Hierarchy of Needs McClellands Needs Approach Herzbergs MotivationHygiene
Classifies needs by levels: psychological, security, social, ego, self-actualization When needs in one level are met, factors in the next level will motivate a person People are motivated by various amounts of these needs: achievement, affiliation, power

Two-factor approach suggests reps need motivators present and hygiene factors absent or neutral Motivating factors intrinsic, hygiene factors extrinsic

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Understanding What Motivates Sales Reps: Process Approaches


Equity Theory
Rep weighs perceived inputs and outcomes in comparison to others and decides if effort/reward ratio is fair, realigns efforts to be rewarding

Expectancy Theory

Rep will choose to behave to give them the highest motivational force in order to maximize efforts they find pleasurable and minimize those that arent

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Content Approaches: Maslows Hierarchy of Needs


Definition
Classifies need Physiological (basic survival needs) Security (need to be safe, for shelter) Social (belongingness, need to have interaction, friendships) Ego (need to feel good about yourself, receive recognition) Self-actualization (need to reach fullest potential) When needs in 1 level are met, factors in the next motivate

Application
Use reinforcements that meet needs at each level Physiological: salary and bonus Security: insurance, retirement Social: work/life balance (flex hours, job share, etc.) Ego: recognition for accomplishments Self-actualization: satisfaction with balance between work accomplishment and home life

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Content Approaches: McClellands Needs Approach


Definition
People are motivated by various amounts of these needs Achievement (desire to perform challenging tasks) Affiliation (need to be liked) Power (need to take charge)

Application
Match reps with rewarding aspects of job Achievement: provide interesting and stimulating job Affiliation: provide friendly relationships and avoid confrontational situations or providing negative feedback (effective leaders) Power: tasks where they can lead, teach or coach

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Content Approaches: Herzbergs MotivationHygiene (2-Factor Approach)


Definition
Reps need to have a job with motivators present and hygiene factors absent or neutral Motivating factors are intrinsic to job Achievement, recognition, the work itself, responsibility, advancement, growth Hygiene factors are extrinsic Company policies and admin, supervision, relationship with supervisor, work conditions, salary, relationship with peers, status, security

Application
Consider presence or absence of groups of factors Make sure rep finds work interesting and challenging Build motivating factors opportunities for achievement, recognition, enjoyable work, responsibility, and advancement into activities Ensure hygiene factors are not considered negative and working as de-motivators

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Process Approaches: Adams Equity Theory


Definition
Rep weighs perceived inputs and outcomes in comparison to others Decides if effort/reward ratio is equitable, realigns efforts to be rewarding Inputs: perception of training, experience, effort, hardships, etc Outputs: perception of compensation, benefits, status, job security, etc Balancing: compare input/outcome ratioequity, overpayment inequity, underpayment inequity

Application
Consider reps perception of motivators in comparison to peers Be attentive to comments regarding concerns about fairness Ask reps to explain their perception of how they compare with a top performer

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Process Approaches: Expectancy Theory


Definition
Rep will choose to behave in the manner that gives them the highest motivational force to maximize pleasurable efforts and minimize those that are not Reps value outcomes differently (recognition, travel, etc.) Reps realize different levels of effort are required for tasks Performances have different likelihoods of producing outcomes; some situations are more certain than others

Application
Focus on highest motivators or on how to raise the level of lower ones Understand what value reps place on different rewards Help improve reps performance; make sure they receive good training and are prepared; align reps to clients whose needs are consistent with their abilities Include other performance measures beyond just a sale and include incentive system that reflects different levels of performance

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Generational Motivational Issues


Matures
Raised during Depression and WWII Know how to follow rules, appreciate more formal communication Hardworking, loyal, and reliable workers Want to be respected and want meaningful title reflecting their importance Admired by Millennial counterparts and have much wisdom that they enjoy sharing with younger workers Traditional forms of recognition are valued Allow them to make meaningful contributions Engage them in mentoring and show respect for their experience

Baby Boomers
Experienced economic prosperity and periods of social consciousness Dual-career couples who work long hours and struggle to balance their family lives, which can include kids and elderly parents Have expectations for others to work as hard as they do Cooperative teamwork and regular communication is preferred Value promotions, leadership positions, and public recognition of accomplishments Flexible working arrangements that help them pursue time with family and individual interests are of increasing value

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.

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Generational Motivational Issues


Generation Xers
Raised by parents who both worked, have shifted workplace emphasis from materialism to focus on family Moving into managerial positions and prefer independence over teamwork and immediate communication over structured meetings Computer use and multi-tasking is second nature Value work opportunities that are changing and allow for opportunity to grow Flexibility in working arrangements is critical as family time is more important than time at work Bonus days off may be valued more than the traditional monetary bonus

Millennials
Soon to be largest group in workforce Some have experienced tight job markets and moved home Been counseled to find a good job thats right for them Require work-life balance High level of social consciousness and responsibility and desire an employer who incorporates and displays these values in their work Being individuals in a team is valued Like immediate feedback and rewards Want meaningful work experiences and mentors or coaches who can help them achieve goals and contribute Flexibility in work environment is a must

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.

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Dos and Donts of Motivating Reps


1 2 3 4 5 6 7

Hire self-motivated people Show trust Capitalize on unique strengths of employees Encourage some people to become experts Empower reps to make their own decisions Offer rewards that are valued by all Develop or remove deadbeats
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Churchill,Ford & Walkers Modal


Motivation

Satisfaction

Effort

Reward

Performance

Selecting a Effective Mix of Motivational Tools


Motivational tools or mix are broadly classified into 2 main categories

Financial Rewards Financial Compensation Plan Salary Commission Bonus Payments Fringe Benefits Retirement Pension Insurance plans Sales Contests

Non Financial Rewards Promotion Sense of accomplishment Personal Growth Opportunities Recognition Job Security Sales Meetings Sales Training programme Job enrichment Supervision

Guidelines For Motivating Sales people


Difference b/w wont Do & cant do Include individual needs into motivational programme Pleateaued Salespersons
These people have stopped improving and developing

Proactive Approach

Motivating the sales person at Different Stages of the Career


Exploration Stage:
This stage occurs usually b/w 20-30 yrs In this stage the individual lacks work experience He is only concerned about finding the right occupation rather than worrying abt the lifetime commitment to a particular occupation In this stage individual is concerned about his SELF IMAGE. The stress in this stage is due to the wide varity of career options available Job Hopping is common as it reflects the attempts to find the occupation that best suits him. Difficult & uphill task for the sales Manager to motivate the salesperson

Establishment Stage:
This stage usually occurs b/w 30-40 yrs Here the focus shifts from searching for right occupation to settling down in a particular occupation & advance in it. Professional success & promotion are key area of concern for salesperson In this stage motivation is done by promotion

Maintainence Stage:
This stage usually occurs around 40-50 yrs. Holding on wht has been achieved. Pleateauedd Approach-motivation through rewards.training

Disengagement stage:
In this stage individual withdraws himself from his career Engage in philanthropic activities

Components of a Reward Program

Marketplace Environment
How do market and industry factors affect the rewards a firm offers its salespeople?

Organizational Culture
How does an organizations culture affect the rewards the firm offers its salespeople?

Business Strategies
How does the strategy of a business affect the rewards a firm offers its salespeople?

Total Rewards Strategy


Compensation
Benefits Work-Life Rewards Recognition

Development

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Two Basic Categories of Rewards

Compensation Rewards:
Those given in return for acceptable performance or effort. They can include nonfinancial compensation.

Non-Compensation Rewards:
Those beneficial factors related to the work situation and well-being of each salesperson.

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


Intrinsic
Sense of Accomplishment Personal Growth Opportunities

Motivation

Extrinsic
Pay

Job security

Promotion
Recognition

Compensation
Majority of reps compensated under a combination plan, which includes a salary component and a variable pay component 60% use combination pay plans 20% use straight salary plans 10% use commission-only plans

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Base Salary
Fixed amount of compensation a rep receives Cost-of-living allowance (COLA): differential pay based on higher cost of living in an area Good when firm wants rep to offer exceptional customer service (Saturn), when difficult to trace role of individual in sale, or when rep is just starting out, developing his book of business (clientele) Advantage: steady income Disadvantage: productivity not rewarded, reps might produce minimal level of work
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Financial Compensation: Straight Salary


Advantages
- Salaries are simple to administer - Planned earnings are easy to project. - Salaries can provide control over salespeoples 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.

Variable (Incentive) Pay


Bonus: lump sum of cash used to reward sales personnel
Stock options: allow reps to purchase their companys shares at reduced prices Team-based pay: reward for group productivity

Commission: % of the price of the product or service the rep earns


Progressive plan: increases % of commission rep earns for each progressive level of sales
Encourage rep to sell as much as possible

Regressive plan: decreases % commission rep earns when they sell more products and services
Sets firm limit amount reps can earn when selling an easy-to-sell product or service (order-takers)

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Progressive vs. Regressive Plans

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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.

Commission-Only Plan
Advantage
Pay only for successful sales effortsdont pay reps who do a poor job or dont contribute to the firms profit

Disadvantage
If sales are slow, reps will receive low income, better salespeople will leave If product takes little effort to sell, reps will earn lots of money without much effort Risk of reps focusing solely on activities that earn the largest commission

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Combination Plan
Includes both salary and incentives Designed to capitalize on advantages base salary and incentive programs offer and minimize disadvantages Base salary = security, incentives = motivation

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Average Level of Combination Pay (US, 2004-2006)

Commission

Base + Bonus

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Ethics in Sales Management: What If Compensation System Encourages Unethical Behavior?

Mobile medical device firm, screens for osteoporosis Marketed services to physicians Demo device, lay out potential profit for doctors
Great amount of money reimbursed by insurance companies for this exam

Many doctors had all patients scanned to create baseline Company code of ethics would not have had support of top management
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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 salespeoples 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
Controls used in the sales expense reimbursement process include: 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

Additional Issues in Managing Sales force Reward Systems


Sales Contests Equal Pay Team Compensation Global Considerations Changing the Reward System

Sales Contests:
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.

3. Consider the positive effects of including non selling 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.

Additional Issues in Managing Sales force Reward Systems


Sales Contests Equal Pay Team Compensation Global Considerations Changing the Reward System

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

Contd.
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.