Ch-06 (Compensation and Motivation of Sales Force)

Block: Basics of Sales Management
Ch-6
Compensation and motivation of Sales Force
Chapt
6
erCompensation and
Motivation of Sales Force
Copyright 2010, S L Gupta
6-1
Sales and Distribution Management
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Compensation Plans
Compensation plans for the sales force are designed to achieve several
objectives. Some of these are:
i.
To assist the company in meeting its sales projections,
ii.
To bring the earnings of the sales force to desired levels,
iii.
To reward individual salespersons in direct proportion to their efforts and
performance.
6-2
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Attitudes towards A Compensation Plan

Salespeople Look for
Companys Attitude
1.
Adequate income for adequate

performance.
1.
No conflict, no argument on this point.
2.
Superior income for superior

performance.
2.
None here either.
3.
Incentives for special

achievement.
3.
All but a few reactionary companies agree.
4.
A base of fixed-income for security

purposes.
4.
Many companies agree, but some cannot afford a fixed

expense such as salary. In certain industries
compensation ranges from 100 per cent salary to 100
per cent commission. Company attitude will depend on
circumstances peculiar to it.
5.
At least primary fringe benefits.
5.
No argument here, but not all companies can afford full

range.
6.
Opportunity for advancement,

promotion.
6.
As much to the companys advantage as the

salespersons.
Cont.
6-3
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
7.
A yardstick to measure
performance.
7.
Equally important for the company to measure

performance.
8.
Equitable treatment to all sales

people; pay based on
performance no free loaders,
no favouritism or exploitation.
8.
Equally important to the employer.
9.
A sense of security because of the

feeling that he is respected and
regarded as a human being who
is important to the company.
9.
Just as important to the company which must rely on

the morale of its sales force. The sense of security and
well-being of sales force pay many bonuses to an
employer.
10. Flexibility in a plan, sensitivity to

changing conditions.
10. Equally important to a company.
11. Simplicity easy to understand.
11. The company agrees the simpler the plan, the easier
and cheaper to administer it.
Cont.
6-4
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6

Formal Compensation Process
Establish Sales
Force Objectives
Determine
Compensation
Objectives, Strategies
and Tactics
Implement Long and

Short-term Range
Programmes
Appraisal and
Recycling
Measure Individual,
Group
and Organisational
Performance
Determine
Compensation
Factors
Relate Rewards
to Performance
Communicate
Compensation Policy
6-5
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Various Modes of Compensating the Sales Force

Salary
A straight salary payroll is by far the easiest for employers to handle. Deductions
for provident fund, income taxes and other fringe benefits are fixed and the work
of accounting is reduced. In many industries, this method of compensation is
generally used. There is always an overriding reason for choosing a salary plan.
The following industries are using this method
Highly seasonal industries
High-tech industries
Trade salespeople
Route salespeople
Missionary and educational salesmen
Group selling
Cont.
6-6
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Strengths of the Salary Compensation Plan

1.
For the sales force

Simple to calculate
Fixed income
Job security
2.
For the company

Reduces turnover in sales force
Increases authority of sales manager in controlling sales force
An effective tool in case
6-7
Group efforts are required

Of business that is technical in nature
Hiring new staff
Cont.
Of seasonal business

Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
The following are the weaknesses of the Salary Compensation Plan

1.
For the sales force

Lack of incentive to excel
Old sales force/under achievers tend to be overpaid
2.
For the company

Fixed expenses, difficult to cut down expenses
Frequent adjustments in salary necessary, yet too many changes are as

bad as too few
Requires excellent supervision which is not always available.

Cont.
6-8
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Straight Commission
Paying a commission is a variable expense rather than a fixed one. If sales are
made, a commission is paid no sales, no commission. This keeps sales
expenses strictly in line. A straight commission pay plan has many advantages.
Flexible commission rates can be a strong incentive and many organisations are
successful because the sales force enjoys a liberal commission schedule.
Cont.
6-9
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Target Commission
A straight commission is paid on sales volume. On a fixed commission base, a
fixed percentage of sales volume is paid to the sales force. Other plans call for
increase in rate as volume increases. A fixed rate commission is easy to figure
and administer. If the rate is 2 per cent, it stays at that percentage whether the
salesperson sells goods worth Rs 40,000 or Rs 4,00,000. A progressive
commission rate accomplishes a major objective of most companies: it provides a
constant incentive to the sales force to do better. The following example explains
this:
Up to
From
Above
Sales (Rs)
Commission Rate
40,000
2%
40,000 to 1,00,000
3%
1,00,000
4%
If a salespersons quota is Rs 80,000, he would earn Rs 2,000 if he achieved

that target exactly a composite rate of 2.5 per cent. For example: Smith Kline
Beecham is using this method in their worldwide selling.
Cont.
6-10
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Bonus, Profit Sharing, Fringe Benefits

Paying bonus is a method that a company adopts to reward special contribution
and as an incentive to superior performance.
Profit Sharing
Many experts in the field of sales management disapprove extending profit
sharing to salespeople. For once, companies agree with them. There may be an
argument in favour of such a payment if no bonus plan is established for
excellence in sales performance.
Fringe Benefits
Fringe benefits have become a fascinating subject and an item of considerable
expense to organisations. The costs of fringes can be as high as 30 per cent of
direct compensation expense depending on what benefits are offered and
Cont.
whether a portion of the expense is shared with the employee.
6-11
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S L Gupta
Excel Books
Ch-6
Reimbursement of Expenses
Travel usually by car or scooter
Meals
Lodging
Entertainment
Miscellaneous
Proper Sales Compensation Plan
Provide a living wage
Have performance Based pay levels
Be adjustable to meet companys goals and individual aspirations.
Such a plan not only helps in normal times but also takes care of special
needs of a company.
6-12
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Motivation to the Sales Force
Motivation is the force within us that directs our behaviour.
A sales manager can use the question guidelines suggested by Ginger

Trumfio for motivating his salespersons.
Are you an Effective Motivator?

Keeping your sales force motivated is vital to execute ongoing sales. How effectively do you
motivate your salespeople? Answer the following questions and you be the judge.
1.
What are the three most effective techniques you use for motivating your entire sales force?
2.
Do you know what motivates each person who reports to you?
3.
Do you know what role compensation plays in the motivation of each salesperson?
4.
Do you know what role recognition plays in the motivation of each salesperson?
5.
Do you know what role opportunity for growth plays in the motivation of each salesperson?
6.
Have you customised a motivational programme for each person who reports to you?
Cont.
6-13
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
1.
What have you done in the past week with the deliberate intention of motivating a
salesperson?
2.
Did you praise someone today?
3.
Do you show your commitment to developing each salesperson by actively (at least once a
month) coaching him on skills and techniques?
4.
When a salesperson seems to be feeling stressed, do you ask questions and spend time
listening to his concerns?
5.
Do you ask your representatives, What can I do personally to help your sales efforts?
6.
Do you review their monthly performance with them in a timely manner?
7.
Have you done anything recently to demotivate your salespeople?

For example: failed to give recognition; embraced a salesperson in front of peers or clients;
taken over a sales call?
1.
Do you treat your salespeople with respect?
2.
Do you show your salespeople trust?
Source: Ginger Trumfio, Are you an Effective Motivator? Sales and Marketing Management
(May 1994): 136.
Cont.
6-14
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6

Low-Cost Ways to Motivate
A pat on the back.

A smile.
A simple, sincere, thank you.
A personal letter to the employee, with copies sent to your immediate supervisor and to the
employees supervisor.
Public recognition in front of peers.
Public recognition in front of ones boss.
A letter of praise from a customer or vendor praising an employee, posted on the companys
bulletin board.
Listening to an employee who has an idea for improving efficiency and then acting
affirmatively on that suggestion.
Arranging employee discounts from your vendors or customers.
Allowing the employee to work on an especially exciting project that he or she would not
usually work on.
Asking employees what non-monetary rewards they would like to have and, if possible,
providing them.
Issuing a You Were Mentioned certificate to employees whenever you hear something
nice about them, whether from a customer, co-worker, or superior.
Cont.
6-15
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Electing a high-achieving employee to a quality circle or to a company wide task force.
Providing free lunch for employees caught in the act of victory by an appointed group of
company wide catchers
Rotating the company flag or other symbols of excellence from one deserving unit to
another on a quarterly basis.

Source: Sam Deep, Lyle Sussman, Smart Moves Reading, Mass: Addison-Wesley, 1990
6-16
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Sales Career Stages and Motivation
Are salespersons motivated by different rewards at different stages of their
career? Do salespeople have different career and personal concerns based

on career stages? The basic answer to both these questions is Yes.
There are four career stages: exploration, establishment, maintenance and
disengagement.
Cont.
6-17
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Characteristics of Different Stages in a Salespersons Career

Exploration
Establishment
Maintenance
Disengagement
Career
Concern
Finding an
appropriate
occupational
field.
Successfully
establishing a
career in a certain
occupation.
Holding on to what
has been achieved;
reassessing career,
with possible
redirection.
Completing ones
career.
Developmental
Tasks
Learning the
skills required
to do the job
well; becoming
a contributing
member of an
organisation.
Using skills to
produce results;
adjusting to
working with
greater autonomy;
developing
creativity and
innovativeness.
Developing broader
view of work and the
organisation;
maintaining a high
performance level.
Establishing a
stronger self
identity outside of
work; maintaining
an acceptable
performance level.
Cont.
6-18
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Personal
Challenges
Establishing a
good initial
professional
self-concept.
Producing superior
result on the job in
order to be
promoted;
balancing the
conflicting
demands of career
and family.
Maintaining
motivation though
possible rewards
have changed; facing
concerns about
ageing and
disappointment over
what one has
accomplished;
maintaining
motivation and
productivity.
Accepting carrer
accomplishments;
adjusting self
image.
Psychological
Needs
Support peer
acceptance;
challenging
position.
Achievement
esteem;
autonomy;
competition.
Reduced
competitiveness;
security; helping
younger colleagues.
Detachment from
organisation and
organisational life.
Source: Adapted from William L Cron, Industrial Salesperson Development: A Career Stages
Perspective, Journal of Marketing (Fall 1984) 40; and William L Cron, Alan J Dubinsky, and Ronald E
Michales, The influence of Career Stages on Components of Salesperson Motivation, Journal of
Marketing (January 1988); 79-92
6-19
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Importance of Motivation Theories for Sales Force

i. Nature of Job: A sales representatives job is usually tiring with irregular
working hours. They do not often have the authority to do what is necessary
to
win an account and they sometimes lose large orders that they have worked
hard to obtain.
ii. Human Nature: Most people operate below capacity in the absence of
special incentives, such as financial gain or social recognition.
iii. Personal Problems: They are occasionally preoccupied with personal
problems, such as sickness in the family, debt, etc.
High productivity in a sales force comes about neither naturally nor accidentally. It
requires motivation.
The problem of motivating sales representatives has been studied by Churchill,
Ford & Walker. They propose the following way.
MOTIVATION
EFFORT
PERFORMANCE
REWARDS
SATISFACTION
6-20
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Dimensions of Motivation
INTENSITY
Motivation has mainly three dimensions

PERSISTENCE
DIRECTION
1.
Intensity: It is the magnitude of mental and physical effort put in by a
salesperson for his or her activity or goal.

2.
Persistence: It is the extension of effort over time.
3.
Direction: It implies that the individual can choose how his or her efforts will
be spent.
Cont.
6-21
Text & Cases
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Excel Books
Ch-6
Motivation Can Also be Intrinsic or Extrinsic
Intrinsic motivation means that individuals are motivated internally by a desire
to please themselves or merely by the satisfaction of performing a job.
Extrinsic motivation means that someone else provides the motivation
through methods such as pay, promotion or recognition.
6-22
Text & Cases
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Excel Books
Ch-6
Model of the Motivation Process

The motivation process consists of six steps :
1.
Recognise need deficiency
2.
Search for ways to satisfy needs
3.
Establish goal-directed behaviour
4.
Performance
5.
Provide rewards or punishment
6.
Process needs.
Cont.
6-23
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6

The Six Step Motivation Process
Recognise need
deficiency
Process begins
Search for ways to

satisfy needs
Needs reassessment
SALESPERSON
Provide punishment
or rewards
Establish goal
directed behaviour
Performance
6-24
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Motivation Theories
Motivation theories are approached through two main models
1.
Cognitive Approach/Model
2.
Non-Cognitive Approach/Model
Cont.
6-25
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Cognitive Approach/Model
Models of motivation which focus on internal states and mental processes are
known as cognitive models.
Cognitive Models
Process Theories
Content Theories
Cont.
6-26
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Content Theories
These theories answer the question What motivates people?, To answer such a
question most of the theories under this category focus on human needs and
desires that are internalised and that give impetus to individual behaviour.
Some of the theories which are:
i.
March and Simon Model
ii.
Maslows Need Hierarchy Model
iii.
Herzbergs Hygiene-Motivation Model
iv.
Alderfers ERG Model
v.
McClelland Three Need Model
vi. McGregors Participation Model

vii. Maturity and Immaturity Theory
Cont.
viii. Theory Z: A Hybrid Model.

6-27

Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Process Theories
These theories answer the question, How are people motivated? To answer this,
most of the theories under this category focus on the dynamics of major variables
that are interrelated in explaining the direction, degree and persistence of effort in
human behaviour. Some of the theories which are described under this category
are:
i.
Vrooms Expectancy Model
ii.
Porter and Lawler Expectancy Model
iii.
Equity Theory
iv.
Self-concept Theory
v.
Vrooms Valence Expectancy Theory
Cont.
6-28
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Non-cognitive Approach
This approach concentrates on operating conditions, i.e., Behaviour is a result of
its consequences and is explained through the Reinforcement Theory.
Reinforcement Theory
This theory is based on the operating conditions that behaviour is a result of its
consequences. It has been developed by well-known psychologist, A F Skinner.
According to him, individuals, having learnt from the past, develop patterns of
behaviour to control future consequences.
Cont.
6-29
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Personal factors
Organisational factors
Environmental factors
Learning from past

experience, reward
punishment, etc,
Conditional predisposition
to act or not to act
Behaviour as a performance
of conditioned learning
The main strategies of this theory are:
Positive Reinforcement: Entails the use of rewards that stimulate repetitive

behaviour.
Negative Reinforcement: Also known as avoidance learning and implies the use of
unpleasant consequences to condition individuals to avoid undesirable behaviour.
Extinction: This is withdrawal of all forms of reinforcement to remove or extinguish
undesirable behaviour.
6-30
Punishment: This tool is used when an unpleasant behaviour needs to be reduced or

eliminated.
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Applications of Various Theories
Using Self-concept in Motivating Salespeople
Using Maslows Theory
Using Herzbergs Two Factor Theory
Using McClelland Theory
Using Expectancy Model
Cont.
6-31
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Other Factors of Motivation

Job Related Factors
The Job Itself
Skill variety
Task identity
Task significance
Job autonomy
Job feedback
Leadership
Job Organisational and Involvement Commitment
Job involvement
Organisational commitment
Institutional stars
Corporate citizens
Apathetics
6-32
Text & Cases
(2nd Edition)
S L Gupta
Cont.
Excel Books
Ch-6
Individual Related Factors
Career Stages
Exploration
Establishment
Maintenance
Disengagement
Career Plateauing
Performing deficiencies
Selection and training
Redesigning job to increase intrinsic motivation
Reducing stress and burnout
Increasing growth opportunities
Acceptance of growth opportunities

6-33
Text & Cases
(2nd Edition)
S L Gupta
Excel Books
Ch-6
Non-financial Factors and their Impact on Sales Force

Motivation
Meetings between Manager and Sales Force
Clarity of Job
Sales Contests
Sales Conferences and Conventions
Positive Feedback
Reward and Recognition
Persuasion
Observations and Future Directions

6-34
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Excel Books

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Block: Basics of Sales Management

Compensation and motivation of Sales Force

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

To assist the company in meeting its sales projections,

To bring the earnings of the sales force to desired levels,

To reward individual salespersons in direct proportion to their efforts and

Copyright 2010, S L Gupta

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Attitudes towards A Compensation Plan

Adequate income for adequate

No conflict, no argument on this point.

Superior income for superior

None here either.

Incentives for special

All but a few reactionary companies agree.

A base of fixed-income for security

Many companies agree, but some cannot afford a fixed

At least primary fringe benefits.

No argument here, but not all companies can afford full

Opportunity for advancement,

As much to the companys advantage as the

Sales and Distribution Management

Text & Cases

Copyright 2010, S L Gupta

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Equally important for the company to measure

Equitable treatment to all sales

Equally important to the employer.

A sense of security because of the

Just as important to the company which must rely on

10. Flexibility in a plan, sensitivity to

10. Equally important to a company.

11. Simplicity easy to understand.

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Implement Long and

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Various Modes of Compensating the Sales Force

Highly seasonal industries

Missionary and educational salesmen

Sales and Distribution Management

Text & Cases

Block: Basics of Sales Management

Compensation and motivation of Sales Force

Strengths of the Salary Compensation Plan

For the sales force

For the company

Group efforts are required

Sales and Distribution Management

Copyright 2010, S L Gupta

Block: Basics of Sales Management