Motivation and Reward System Management

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Motivation and Reward System Management

• Module Eight

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Posters work
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"Winners must have two things definite goals and
a burning desire to achieve them."
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Motivation and RewardsAn Experts 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.
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Motivation and RewardsAn Experts Viewpoint
The companys system for motivating and rewarding
its salespeople has been very successful. Five
people qualified for the Porsche in 2000, and
eight qualified in 2001. The company has grown
to more than 100 million in revenues in just
four years
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Motivation
The force within us that activates our behavior.
It is a function of three distinct components,
Intensity, Direction, and Persistence.
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Motivation - Intensity
Intensity refers to the amount of mental and
physical effort put forth by the salesperson.
Motivation
Intensity
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Motivation - Direction
The extent to which an individual determines and
chooses efforts focused on a particular goal.
Motivation
Direction
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Motivation - Persistence
The extent to which the goal-directed effort is
put forth over time.
Motivation
Persistence
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really motivate those people!

• Does more effort lead to a
• higher level of performance?
• Why not?

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Motivation Intrinsic vs. Extrinsic

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

When doing the job is inherently motivating
ever happen?
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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 such as
recognition and opportunities for growth and
promotion.

• Noncompensation rewards
• Those beneficial factors related to the work
  situation and well-being of each salesperson.
  Provide adequate resources to do the job.
  Allowing the people control over their own
  activities.

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Optimal Sales Force Reward System

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

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Types of Sales Force Rewards
Pay
Sense of Accomplishment
Job security
Promotion
Personal Growth Opportunities
Recognition
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Financial CompensationStraight 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 experienced salespeople.
• Salaries represent fixed overhead.

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Financial CompensationStraight 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. 2/3 of firms with
  salary plus bonus impose caps but only 1/3 of
  those using salary plus commission plans do

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Straight Commission Plan Variations

• Commission base volume or profitability
• Commission rate constant, progressive, or a
  combination
• Commission splits between two or more
  salespeople or between salespeople and the
  employer
• Commission payout event when the order is
  confirmed, shipped, billed, paid for, or some
  combination of these events

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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.

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Outside reps and salespeople

• Salespeople at Polyflex Film noted that after
  hitting quota they were eligible to receive an
  additional 20,000 on the next 1 million sold
  (depending on years of service and base salary).
• However, they were also aware that the companys
  outside manufacturers reps would receive 50,000
  for the same 1 million sale, and they didnt
  need to hit any sales quotas to receive it.

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Financial CompensationPerformance 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.

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Financial CompensationCombination 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.

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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

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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

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Sales Expenses
Controls used in the sales expense reimbursement
process include

• A definition of which expenses are reimbursable
• The establishment of expense budgets
• The use of allowances for certain expenditures
• Documentation of expenses to be reimbursed

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Additional Issues in Managing Salesforce Reward
Systems

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

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Sales ContestsRecommended Guidelines

• 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.
• Recognize that contests will concentrate efforts
  in specific areas, often at the temporary neglect
  of other areas. Plan accordingly.

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Sales ContestsRecommended Guidelines

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

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Guidelines for Motivating and Rewarding
Salespeople

• Recruit and select salespeople whose personal
  motives match the requirements and rewards of the
  job.
• Attempt to incorporate the individual needs of
  salespeople into motivational programs.
• Use job design and redesign as motivational tools

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Guidelines for Motivating and Rewarding
Salespeople

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

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Easy Check

• Law firm Akin Smith requires its employees to
  check in and out from their desks at an
  electronic finger-sensor.  This enables the firm
  to know exactly how long lunch breaks are for
  employees.
• Such electronic tracking systems are becoming
  increasingly common.  Advocates say this prevents
  employees from padding their work sheets and
  helps identify the few truly slothful workers. 
  But critics claim that such intense monitoring of
  on-site presence can actually interfere with
  productivity, leaving less room for creativity
  and individual differences in the way people get
  their work done.
• Costs v Benefits

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Sales people in 2002

• Level Total Base salary Bonus
  comm
• Executive. 136k 90k
  46k
• Top perform 140k 74k 66k
• Mid-level 83k 50k
  33k
• Low-level 56k 37k
  19k
• Average for all reps
• 97k 59k
  38k
• Sales Marketing Management May 2003

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Rewarding salespeople

• I've found salespeople fall into three
  categories. First, there are the hotshots -- the
  super salespeople who have all the answers, who
  claim to know more about your industry than you
  do, and who are impossible to teach or control.
  They thrive on commissions and don't want to be
  part of anyone's team.
• The second group consists of entrepreneurs, that
  is, salespeople who really want to be in business
  for themselves. They are also motivated by sales
  commissions, because they like to be independent
  and they aren't planning to stick around anyway.
  You may be able to convert some of them, but the
  majority will leave eventually and start their
  own companies. That is their destiny, and there's
  nothing you can do about it.

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Rewarding salespeople

• Then there's the third group, which is the
  largest -- people who do sales for a living
  simply because they like the work and they're
  good at it. They have no hidden agenda. They are
  motivated by the same things that motivate other
  employees. They just happen to sell. These people
  don't need to be on commission. Yes, they want to
  be compensated fairly, but they also want what
  most other people want -- to be part of a team.
  They want to belong.
• Inc, May 2003 By Norm Brodsky

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Rewarding salespeople

• So we start new salespeople with what they're
  used to salary and commission. After two years,
  we know whom we want to keep. I'll then go to the
  person and say, "Listen, you've been here two
  years. We want you to be here forever. We'll buy
  out your commission and raise your salary, so you
  won't lose any income. In return, you'll get
  stability. Do you think you're going to have a
  good year? I'm willing to guarantee that you'll
  have a good year. And if you really do have a
  good year, I'll guarantee that next year will be
  even better. Inc, May 2003 By Norm Brodsky