Block

:

I

Basics of Sales Management Ch-6
Compensation and motivation of Sales Force

Chapter

6

Compensation 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

Block:

I

Basics of Sales Management Ch-6
Compensation and motivation of Sales Force

Compensation Plans
Compensation plans for the sales force are designed to achieve several objectives. Some of these are: i. ii. iii. 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

performance.

Copyright © 2010, S L Gupta

6-2

Sales and Distribution Management

Text & Cases

(2nd Edition)

S L Gupta

Excel Books

Block:

I

Basics of Sales Management Ch-6
Compensation and motivation of Sales Force

Attitudes towards A Compensation Plan
Salespeople Look for 1. 2. 3. 4. Adequate income for adequate performance. Superior income for superior performance. Incentives for special achievement. A base of fixed-income for security purposes. 1. 2. 3. 4. Company¶s Attitude No conflict, no argument on this point. None here either. All but a few reactionary companies agree. 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. No argument here, but not all companies can afford full range. As much to the company¶s advantage as the salesperson¶s.
Cont«. Copyright © 2010, S L Gupta

5. 6.

At least primary fringe benefits. Opportunity for advancement, promotion.

5. 6.

6-3

Sales and Distribution Management

Text & Cases

(2nd Edition)

S L Gupta

Excel Books

11. 11. 9. 10. 10. Flexibility in a plan. Copyright © 2010. 8. Equally important to a company. 8. 9. 7. sensitivity to changing conditions. Equally important to the employer. Equitable treatment to all sales people. Simplicity ² easy to understand. A yardstick to measure performance. A sense of security because of the feeling that he is respected and regarded as a human being who is important to the company.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 7. Just as important to the company which must rely on the morale of its sales force. S L Gupta 6-4 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . The sense of security and wellbeing of sales force pay many bonuses to an employer. Equally important for the company to measure performance. Cont«. no favouritism or exploitation. The company agrees ² the simpler the plan. the easier and cheaper to administer it. pay based on performance ² no free loaders.

Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Formal Compensation Process Determine Compensation Objectives. S L Gupta 6-5 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Group and Organisational Performance Relate Rewards to Performance Communicate Compensation Policy Copyright © 2010. Strategies and Tactics Establish Sales Force Objectives Determine Compensation Factors Appraisal and Recycling Implement Long and Short-term Range Programmes Measure Individual.

this method of compensation is generally used. Deductions for provident fund. In many industries. S L Gupta 6-6 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Various Modes of Compensating the Sales Force Salary A straight salary payroll is by far the easiest for employers to handle. 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«. Copyright © 2010. income taxes and other fringe benefits are fixed and the work of accounting is reduced.

Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Strengths of the Salary Compensation Plan 1.    Simple to calculate Fixed income Job security Reduces turnover in sales force Increases authority of sales manager in controlling sales force An effective tool in case For the company ‡ ‡ ‡ ‡ 6-7 Group efforts are required Of business that is technical in nature Hiring new staff Of seasonal business Text & Cases Cont«. S L Gupta Sales and Distribution Management (2nd Edition) S L Gupta Excel Books . For the sales force    2. Copyright © 2010.

S L Gupta Fixed expenses. Lack of incentive to excel Old sales force/under achievers tend to be overpaid For the company   few  Requires excellent supervision which is not always available. Copyright © 2010. Cont«. For the sales force   2.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force The following are the weaknesses of the Salary Compensation Plan 1. yet too many changes are as bad as too 6-8 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . difficult to cut down expenses Frequent adjustments in salary necessary.

a commission is paid ² no sales. If sales are made. S L Gupta 6-9 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Straight Commission Paying a commission is a variable expense rather than a fixed one. This keeps sales expenses strictly in line. Copyright © 2010. A straight commission pay plan has many advantages. Cont«. no commission. It is desirable for a company suffering from a severe cash shortage since the commission need not be paid until proceeds are received from a sale. Flexible commission rates can be a strong incentive and many organisations are successful because the sales force enjoys a liberal commission schedule.

a fixed percentage of sales volume is paid to the sales force. he would earn Rs 2. S L Gupta 6-10 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .000 1.000 40. A fixed rate commission is easy to figure and administer.000. If the rate is 2 per cent.000 Commission Rate 2% 3% 4% If a salesperson¶s quota is Rs 80. it stays at that percentage whether the salesperson sells goods worth Rs 40. For example: Smith Kline Beecham is using this method in their worldwide selling. A progressive commission rate accomplishes a major objective of most companies: it provides a constant incentive to the sales force to do better. Copyright © 2010. Cont«.00.000 if he achieved that target exactly ² a composite rate of 2. Other plans call for increase in rate as volume increases.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Target Commission A straight commission is paid on sales volume.000 to 1.5 per cent.000 or Rs 4. The following example explains this: Sales (Rs) Up to From Above 40.00.000. On a fixed commission base.00.

Fringe Benefits Paying bonus is a method that a company adopts to reward special contribution and as an incentive to superior performance.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Bonus. The costs of fringes can be as high as 30 per cent of direct compensation expense depending on what benefits are offered and whether a portion of the expense is shared with the employee. S L Gupta 6-11 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Profit Sharing. companies agree with them. Profit Sharing Many experts in the field of sales management disapprove extending profit sharing to salespeople. Cont«. Copyright © 2010. For once. Fringe Benefits Fringe benefits have become a fascinating subject and an item of considerable expense to organisations. There may be an argument in favour of such a payment if no bonus plan is established for excellence in sales performance.

6-12 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Reimbursement of Expenses      Travel ² 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. S L Gupta Such a plan not only helps in normal times but also takes care of special company. needs of a Copyright © 2010.

3. How effectively do you motivate your salespeople? Answer the following questions and you be the judge. 4. Copyright © 2010. S L Gupta 6-13 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .  A sales manager can use the question guidelines suggested by Ginger Trumfio for motivating his salespersons. 2. 1. 5. 6. Are you an Effective Motivator? Keeping your sales force motivated is vital to execute ongoing sales. What are the three most effective techniques you use for motivating your entire sales force? Do you know what motivates each person who reports to you? Do you know what role compensation plays in the motivation of each salesperson? Do you know what role recognition plays in the motivation of each salesperson? Do you know what role ³opportunity for growth´ plays in the motivation of each salesperson? Have you customised a motivational programme for each person who reports to you? Cont«.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Motivation to the Sales Force  Motivation is the force within us that directs our behaviour.

8. embraced a salesperson in front of peers or clients. ³Are you an Effective Motivator?´ Sales and Marketing Management (May 1994): 136. Cont«. 12. What have you done in the past week with the deliberate intention of motivating a salesperson? Did you praise someone today? Do you show your commitment to developing each salesperson by actively (at least once a month) coaching him on skills and techniques? When a salesperson seems to be feeling stressed. ³What can I do personally to help your sales efforts?´ Do you review their monthly performance with them in a timely manner? Have you done anything recently to ³demotivate´ your salespeople? For example: failed to give recognition. 13. 9. do you ask questions and spend time listening to his concerns? Do you ask your representatives. Do you treat your salespeople with respect? Do you show your salespeople trust? Source: Ginger Trumfio. S L Gupta 6-14 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 7. 15. 10. 11. taken over a sales call? 14. Copyright © 2010.

Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Low-Cost Ways to Motivate             A pat on the back. Copyright © 2010. Public recognition in front of peers. sincere. or superior. whether from a customer. posted on the company¶s bulletin board. Cont«. with copies sent to your immediate supervisor and to the employee¶s supervisor. A personal letter to the employee. Allowing the employee to work on an especially exciting project that he or she would not usually work on. A simple. if possible. providing them. thank you. Listening to an employee who has an idea for improving efficiency and then acting affirmatively on that suggestion. co-worker. A smile. Public recognition in front of one¶s boss. S L Gupta 6-15 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Asking employees what non-monetary rewards they would like to have and. Arranging employee discounts from your vendors or customers. A letter of praise from a customer or vendor praising an employee. Issuing a ³You Were Mentioned´ certificate to employees whenever you hear something nice about them.

Providing free lunch for employees caught in the act of victory by an appointed group of company wide ³catchers´  Rotating the ³company flag´ or other symbols of excellence from one deserving unit to another on a quarterly basis. Lyle Sussman. 1990 Copyright © 2010. S L Gupta 6-16 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force   Electing a high-achieving employee to a quality circle or to a company wide task force. Smart Moves Reading. Source: Sam Deep. Mass: Addison-Wesley.

Cont«. Copyright © 2010.  There are four career stages: exploration. maintenance and disengagement.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 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 µYes¶. establishment. S L Gupta 6-17 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .

S L Gupta Disengagement Completing one¶s career. 6-18 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . adjusting to working with greater autonomy. with possible redirection. Using skills to produce results. Cont«. Establishing a stronger self identity outside of work. Maintenance Holding on to what has been achieved. Copyright © 2010. Developmental Tasks Learning the skills required to do the job well.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Characteristics of Different Stages in a Salesperson¶s Career Exploration Career Concern Finding an appropriate occupational field. maintaining a high performance level. becoming a contributing member of an organisation. maintaining an acceptable performance level. Establishment Successfully establishing a career in a certain occupation. Developing broader view of work and the organisation. reassessing career. developing creativity and innovativeness.

Achievement esteem. Maintaining motivation though possible rewards have changed. autonomy. competition. Detachment from organisation and organisational life. Source: Adapted from William L Cron. challenging position. Producing superior result on the job in order to be promoted. S L Gupta 6-19 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Journal of Marketing (January 1988). Accepting carrer accomplishments. and William L Cron. Journal of Marketing (Fall 1984) 40. 79-92 Copyright © 2010. and Ronald E Michales. Reduced competitiveness. balancing the conflicting demands of career and family. maintaining motivation and productivity. adjusting self image. helping younger colleagues. facing concerns about ageing and disappointment over what one has accomplished. Alan J Dubinsky. ³The influence of Career Stages on Components of Salesperson Motivation´.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Establishing a good initial professional self-concept. ³Industrial Salesperson Development: A Career Stages Perspective´. security. Personal Challenges Psychological Needs Support peer acceptance.

It requires motivation. iii. They propose the following way. ii.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Importance of Motivation Theories for Sales Force i. The problem of motivating sales representatives has been studied by Churchill. Human Nature: Most people operate below capacity in the absence of special incentives. etc. such as sickness in the family. debt. S L Gupta 6-20 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . High productivity in a sales force comes about neither naturally nor accidentally. Ford & Walker. 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. Personal Problems: They are occasionally preoccupied with personal problems. MOTIVATION EFFORT PERFORMANCE REWARDS SATISFACTION Copyright © 2010. Nature of Job: A sales representatives¶ job is usually tiring with irregular working hours. such as financial gain or social recognition.

2. 3.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force INTENSITY Dimensions of Motivation Motivation has mainly three dimensions PERSISTENCE DIRECTION 1. S L Gupta 6-21 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Copyright © 2010. Persistence: It is the extension of effort over time. Intensity: It is the magnitude of mental and physical effort put in by a salesperson for his or her activity or goal. Cont«. Direction: It implies that the individual can choose how his or her efforts will be spent.

S L Gupta 6-22 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Copyright © 2010.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 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. S L Gupta 6-23 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Copyright © 2010. 4. 3. Cont«. Recognise need deficiency Search for ways to satisfy needs Establish goal-directed behaviour Performance Provide rewards or punishment Process needs. 5.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Model of the Motivation Process The motivation process consists of six steps : 1. 2.

S L Gupta 6-24 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force The Six Step Motivation Process Recognise need deficiency Process begins Needs reassessment SALESPERSON Search for ways to satisfy needs Provide punishment or rewards Establish goal directed behaviour Performance Copyright © 2010.

Copyright © 2010. S L Gupta 6-25 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Motivation Theories Motivation theories are approached through two main models 1. 2. Cognitive Approach/Model Non-Cognitive Approach/Model Cont«.

Copyright © 2010. Cognitive Models Content Theories Process Theories Cont«.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Cognitive Approach/Model Models of motivation which focus on internal states and mental processes are known as cognitive models. S L Gupta 6-26 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .

vi. 6-27 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . March and Simon Model Maslow¶s Need Hierarchy Model Herzberg¶s Hygiene-Motivation Model Alderfer¶s ERG Model McClelland Three Need Model McGregor¶s Participation Model Maturity and Immaturity Theory Cont«. Copyright © 2010. iv. vii. ii. Theory Z: A Hybrid Model.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Content Theories These theories answer the question µWhat 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. iii. v. S L Gupta viii. Some of the theories which are: i.

Copyright © 2010. ³How are people motivated?´ To answer this. degree and persistence of effort in human behaviour.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Process Theories These theories answer the question. iv. S L Gupta 6-28 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . v. Vroom¶s Expectancy Model Porter and Lawler Expectancy Model Equity Theory Self-concept Theory Vroom¶s Valence Expectancy Theory Cont«. ii. iii. Some of the theories which are described under this category are: i. most of the theories under this category focus on the dynamics of major variables that are interrelated in explaining the direction.

According to him.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Non-cognitive Approach This approach concentrates on operating conditions. Cont«. having learnt from the past. It has been developed by well-known psychologist. Copyright © 2010. i. develop patterns of behaviour to control future consequences. S L Gupta 6-29 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . A F Skinner.. Reinforcement Theory This theory is based on the operating conditions that behaviour is a result of its consequences. ³Behaviour is a result of its consequences´ and is explained through the Reinforcement Theory. individuals.e.

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.  Punishment: This tool is used when an unpleasant behaviour needs to be reduced or 6-30 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . etc. unpleasant undesirable eliminated.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Personal factors Organisational factors Environmental factors Learning from past experience. S L Gupta  Negative Reinforcement: Also known as avoidance learning and implies the use of consequences to condition individuals to avoid undesirable behaviour. reward punishment. Copyright © 2010.  Extinction: This is withdrawal of all forms of reinforcement to remove or extinguish behaviour.

Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Applications of Various Theories      Using Self-concept in Motivating Salespeople Using Maslow¶s Theory Using Herzberg¶s Two Factor Theory Using McClelland Theory Using Expectancy Model Cont«. Copyright © 2010. S L Gupta 6-31 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .

Copyright © 2010. S L Gupta (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 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 Sales and Distribution Management Text & Cases Cont«.

S L Gupta Text & Cases Career Plateauing Sales and Distribution Management (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Individual Related Factors  Career Stages            6-33 Exploration Establishment Maintenance Disengagement Performing deficiencies Selection and training Redesigning job to increase intrinsic motivation Reducing stress and burnout Increasing growth opportunities Acceptance of growth opportunities Copyright © 2010.

S L Gupta 6-34 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 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 Copyright © 2010.

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