Motivation and Reward System Management

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Motivation and Reward System Management

• Module Eight

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Learning Objectives

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

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Learning Objectives

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

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Setting the Stage
Motivating and Rewarding Driving Product Mix
Sales at FedEx

• What were the two primary problems FedEx faced
  regarding compensation?
• How did FedEx resolve the two problems?

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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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Motivation Intrinsic vs. Extrinsic
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Two Basic Categories of Rewards
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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
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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 experiences 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.

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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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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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DOs of Global Compensation

• Do involve reps from key countries
• Do allow local managers to decide the mix between
  base and incentive pay
• Do use consistent performance measures (results
  paid for) and emphasis on each measure
• Do allow local countries flexibility and
  implementation
• Do use consistent and indication and training
  themes worldwide

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DONTs of Global Compensation

• Dont assign the planned centrally and dictate to
  local countries
• Dont create a similar framework for jobs with
  different responsibilities
• Dont require consistency on every performance
  measure within the incentive plan
• Dont assume cultural differences can be managed
  through the incentive plan
• Dont perceive without the support of senior
  sales executives worldwide

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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.