SALES FORCE MOTIVATION AND

COMPENSATION
Learning Objectives:

 To understand the importance of

sales force motivation,
compensation for creating
enhanced sales, and
retention of existing sales
persons and attraction of the
best talent in the industry.
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• 10.1 Introduction
• One of the most difficult task of a sales manager is sales force
motivation. The diverse challenges of modern selling make the
same true. Sales persons need change as they go through the
various stages of their careers and hence sales incentives and
compensation must be adapted. A sales manager’s first challenge is
to identify the needs of sales personnel.
• Then the manager has to provide the conditions for motivation
opportunities for growth, achievement, participation, responsibility
and recognition. The manager must also make sure the basic
conditions for good morale are provided adequate pay, suitable
physical surroundings, social opportunities and the like. To a large
extent these needs will be met through the various forms of sales
incentives, compensation and leadership.

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• 10.2 Importance of Motivation
• A manager cannot motivate sales persons without
understanding their needs. Although personnel
leadership is a strong motivating factor, financial and
non-financial incentives are the two other major
means of motivating sales people.
• A sales organization is made of human beings and so
an organizational effectiveness is a function of the
managerial ability to motivate the sales person for
achieving sales goals. If we have to put an equation
relating sales performance and motivation we can
say: Performance = Ability x Motivation.

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• 10.3 Theories of Motivation
• There are various theories of motivation. We are
going to discuss the 5 main motivational theories
as follows:
• 1. Content theory
• 2. ERG Theory
• 3. Expectancy theory
• 4. Achievement theory
• 5.Dual – Factor Theory:
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• 1. Content theory:
• According to this theory, an individual sales person will
prioritize his needs for achieving equilibrium between
performance and rewards. A popular theory in this
category is the Hierarchy of Needs Theory propounded by
Abraham H. Maslow. According to Maslow, every
individual seeks to satisfy five levels of needs. These
needs can be satisfied by extrinsic and intrinsic rewards.
The reward in the form of money could motivate the sales
person for a longer period of time, but as he gets more
experience and has adequate savings with him in the
subsequent years, factors such as working conditions,
security, safety, democratic style of supervision become
strong motivational factors than financial rewards.
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• 2. ERG Theory
• In an attempt to line up Maslow's Theory of Needs
with empirical studies, Alderfer's ERG Theory elicits
three core requirements: Existence, Relatedness, and
Growth. According to Alderfer, the needs aren't in any
order and any desire to fulfil a need can be activated
at any point in time. This results in the lower level
needs not requiring to be satisfied in order to satisfy a
higher level need. Alderfer's ERG Theory can actually
be utilized as a frustration-regression principle where
an already satisfied lower level need can be "re-
activated" when confronted with the impossibility of
satisfying a higher level one.
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• 3. Expectancy theory:
• The expectancy theory was propounded by Victor Vroom.
It conceptualizes that the strength of an individual’s
motivation to behave in a certain way depends upon how
strongly the individual believes that these efforts will
achieve the desired performance. If the sales person finds
that there is no chance that his efforts will lead to desired
performance, his expectancy will be zero.
• Hence, sales persons need counseling to view their own
competencies realistically. The sales manager should
understand the dynamics of the sales person’s behavior
and help him to develop the skills that lead to improved
performance.

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• 4. Achievement theory:
• The achievement theory was propounded by David McChelland in
association with other researchers. According to his theory,
certain self-motivated salespersons have a high need of
achievement and continuously strive to improve their
performance. These sales person take personal responsibility for
finding solutions to problem situations, always search for
achievable goals and sometimes even take feedback from their
superiors on how they are doing. McChelland had also devised a
Thematic Appreciation Test to help organizations to recruit high
performance sales persons. Such self-motivated people are self-
starters and require a nominal external incentive to succeed and
constantly challenge themselves to improve their performance.

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• 5.Dual – Factor Theory:
• This motivation theory was propounded by Frederick Hertzberg. It is also
based on the idea that people have needs that they will seek to satisfy
through their behavior. Unlike Maslow, Hertzberg dual factor theory
groups sources of satisfaction and dissatisfaction into two groups,
namely hygiene factors and motivation factors. Hygiene factors prevent
dissatisfaction, whereas motivators involve the feeling of the sales
person. He had identified ten hygiene factors (Corporate policy and
administration, Relationship with supervisor, Work conditions, Salary,
Relationship with peers, Personal life, Relationship with subordinates,
Status, Security, Supervision) and six motivators (Achievement,
Recognition, Work, Responsibility, Advancement , Growth) to explain the
motivation concept in the context of a business organization. Inadequate
level of hygiene factors will create dissatisfaction. Only the higher order
factors lead to motivation.

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• 10.4 Compensating Salespersons :
• A properly designed sales compensation creates a win-win situation for
the company as well as the sales person. A sales person is required to
put in more efforts to fight for the market share in this liberalized and
globalized business world. Sales compensation plans aids effective
motivation. A good sales compensation plan should provide a living
wage- which we call salary. Salaried sales person feel more secure
because of a regular income. In addition to a fixed salary the
compensation plan should also adjust pay to changes in performance.
Flexible commission rates on variable sales can be a strong incentive.
Most of the private sector banks are using this salary plus commission
model to motivate the sales persons.
• A sound incentive and compensation plan is essential to successful
management of sales force. An effective plan can be an important
motivator. However sales managers must recognize that financial
incentives are not the only way to stimulate sales people.

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• Incentives :
• A sales incentive can be defined as anything that is used to reward the
sales person for his accomplishment. In designing incentives one can
choose either a special – effort approach or a continuing format
approach. A sales contest is a form of special effort incentive, because a
contest is designed to achieve a specific short term goal. However,
compensation and promotion are related to the achievement of
achieving long-term objectives.
• The major types of incentives are shown below:
• Financial incentives: Financial incentives are of two types.
• Those financial incentives that are directly given are called
Direct Financial rewards.
• For example :
• (1) Salary
• (2) Commission
• (3) Bonus

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• Non-Financial incentives :
• Non-financial incentives are used for special effort situations and short
range objectives.
• For example :
• (a) Recognition
• (b) Sales contests
• (c) Sales meetings
• (d) Sales training
• Those financial incentives that are given indirectly are called Indirect
Financial rewards e.g.:
• (1)Fringe benefits
• For example :
• (a) paid vacations
• (b) insurance plans
• (c) retirement plans

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• With this we complete our session on
chapter 10 ‘SALES FORCE MOTIVATION AND
COMPENSATION’.

Next we move to Chapter 11

‘Sales Department Relations’

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Next Chapter 10
‘Sales Department
Relations’ ’

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