Block

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

Group and Organisational Performance Relate Rewards to Performance Communicate Compensation Policy Copyright © 2010. S L Gupta 6-5 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 Formal Compensation Process Determine Compensation Objectives. Strategies and Tactics Establish Sales Force Objectives Determine Compensation Factors Appraisal and Recycling Implement Long and Short-term Range Programmes Measure Individual.

There is always an overriding reason for choosing a salary plan. Deductions for provident fund. this method of compensation is generally used. In many industries. S L Gupta 6-6 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 Various Modes of Compensating the Sales Force Salary A straight salary payroll is by far the easiest for employers to handle. income taxes and other fringe benefits are fixed and the work of accounting is reduced. The following industries are using this method       Highly seasonal industries High-tech industries Trade salespeople Route salespeople Missionary and educational salesmen Group selling Cont«.

S L Gupta Sales and Distribution Management (2nd Edition) S L Gupta Excel Books . For the sales force    2.    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«.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Strengths of the Salary Compensation Plan 1. Copyright © 2010.

S L Gupta Fixed expenses. Cont«. difficult to cut down expenses Frequent adjustments in salary necessary. 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.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. Copyright © 2010. yet too many changes are as bad as too 6-8 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . For the sales force   2.

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. a commission is paid ² no sales. A straight commission pay plan has many advantages. Copyright © 2010. If sales are made. Flexible commission rates can be a strong incentive and many organisations are successful because the sales force enjoys a liberal commission schedule. Cont«.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. S L Gupta 6-9 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . no commission. This keeps sales expenses strictly in line.

The following example explains this: Sales (Rs) Up to From Above 40. If the rate is 2 per cent.000 Commission Rate 2% 3% 4% If a salesperson¶s quota is Rs 80.00. a fixed percentage of sales volume is paid to the sales force. A fixed rate commission is easy to figure and administer. Other plans call for increase in rate as volume increases. S L Gupta 6-10 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Cont«.000 1.00. Copyright © 2010.000 or Rs 4. For example: Smith Kline Beecham is using this method in their worldwide selling.000.000 if he achieved that target exactly ² a composite rate of 2. it stays at that percentage whether the salesperson sells goods worth Rs 40. On a fixed commission base.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Target Commission A straight commission is paid on sales volume. A progressive commission rate accomplishes a major objective of most companies: it provides a constant incentive to the sales force to do better.000.000 to 1. he would earn Rs 2.5 per cent.00.000 40.

Profit Sharing. 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. For once. S L Gupta 6-11 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Copyright © 2010. 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. 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.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Bonus. Cont«.

S L Gupta Such a plan not only helps in normal times but also takes care of special company. needs of a Copyright © 2010. 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.

 A sales manager can use the question guidelines suggested by Ginger Trumfio for motivating his salespersons. 2. 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«. 6. How effectively do you motivate your salespeople? Answer the following questions and you be the judge. 5. 4. 1. Are you an Effective Motivator? Keeping your sales force motivated is vital to execute ongoing sales. Copyright © 2010. S L Gupta 6-13 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 to the Sales Force  Motivation is the force within us that directs our behaviour. 3.

Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force 7. Cont«. Copyright © 2010. 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. S L Gupta 6-14 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . 11. 15. taken over a sales call? 14. 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. do you ask questions and spend time listening to his concerns? Do you ask your representatives. 10. Do you treat your salespeople with respect? Do you show your salespeople trust? Source: Ginger Trumfio. 9. ³Are you an Effective Motivator?´ Sales and Marketing Management (May 1994): 136. 8. 12. embraced a salesperson in front of peers or clients.

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

1990 Copyright © 2010. Mass: Addison-Wesley. Smart Moves Reading. 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.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. Source: Sam Deep. Lyle Sussman. S L Gupta 6-16 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books .

 There are four career stages: exploration. Copyright © 2010. maintenance and disengagement. S L Gupta 6-17 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 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. Cont«.

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

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

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

3. Copyright © 2010.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. Direction: It implies that the individual can choose how his or her efforts will be spent. S L Gupta 6-21 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Cont«. Persistence: It is the extension of effort over time. 2. Intensity: It is the magnitude of mental and physical effort put in by a salesperson for his or her activity or goal.

S L Gupta 6-22 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . promotion or recognition.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. Copyright © 2010.  Extrinsic motivation means that someone else provides the motivation through methods such as pay.

Cont«. 6.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. Copyright © 2010. Recognise need deficiency Search for ways to satisfy needs Establish goal-directed behaviour Performance Provide rewards or punishment Process needs. 2. S L Gupta 6-23 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . 5. 3. 4.

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. 2. S L Gupta 6-25 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . Cognitive Approach/Model Non-Cognitive Approach/Model Cont«.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.

Cognitive Models Content Theories Process Theories Cont«. Copyright © 2010. S L Gupta 6-26 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 Cognitive Approach/Model Models of motivation which focus on internal states and mental processes are known as cognitive models.

Some of the theories which are: i. 6-27 Sales and Distribution Management Text & Cases (2nd Edition) S L Gupta Excel Books . vi. 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«. ii. Theory Z: A Hybrid Model. vii. 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. iv. S L Gupta viii. v. Copyright © 2010.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Content Theories These theories answer the question µWhat motivates people?. iii.

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

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

Copyright © 2010.  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 . 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.Block: I Basics of Sales Management Ch-6 Compensation and motivation of Sales Force Personal factors Organisational factors Environmental factors Learning from past experience. reward punishment. unpleasant undesirable eliminated. etc. S L Gupta  Negative Reinforcement: Also known as avoidance learning and implies the use of consequences to condition individuals to avoid undesirable behaviour.  Extinction: This is withdrawal of all forms of reinforcement to remove or extinguish behaviour.

Copyright © 2010.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«. S L Gupta 6-31 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 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 (2nd Edition) S L Gupta Excel Books . Copyright © 2010.

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 Text & Cases Career Plateauing Sales and Distribution Management (2nd Edition) S L Gupta Excel Books .

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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