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Motivation and Reward System Management

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1 Motivation and Reward System Management
Module Eight Motivation and Reward System Management

2 Posters work

3 "Winners must have two things; definite goals and a burning desire to achieve them."



6 Motivation and Rewards An Expert’s Viewpoint:
Optimus Solutions has a substantial motivation and reward system. The sales reps receive a 10% - 25% commission on every dollar of profit they generate. The more profit sales reps generate, the more they earn. In addition, any rep that reaches an aggressive, yet obtainable, annual sales goal of $1 million during a 12-month period receives a one-year lease on a Porsche 911. Action

7 Motivation and Rewards An Expert’s Viewpoint:
Result The company’s system for motivating and rewarding its salespeople has been very successful. Five people qualified for the Porsche in 2000, and eight qualified in The company has grown to more than $100 million in revenues in just four years

8 Motivation The force within us that activates our behavior. It is a function of three distinct components, Intensity, Direction, and Persistence. Intensity Persistence Direction Motivation

9 Motivation - Intensity
Intensity refers to the amount of mental and physical effort put forth by the salesperson. Motivation Direction Persistence Intensity

10 Motivation - Direction
The extent to which an individual determines and chooses efforts focused on a particular goal. Motivation Intensity Persistence Direction

11 Motivation - Persistence
The extent to which the goal-directed effort is put forth over time. Motivation Intensity Direction Persistence

12 really motivate those people!
Does more effort lead to a higher level of performance? Why not?

13 Motivation: Intrinsic vs. Extrinsic
When doing the job is inherently motivating ever happen? When rewards such as pay and formal recognition act as motivators 2

14 Two Basic Categories of Rewards
Compensation rewards: Those given in return for acceptable performance or effort. They can include nonfinancial compensation such as recognition and opportunities for growth and promotion. Noncompensation rewards: Those beneficial factors related to the work situation and well-being of each salesperson. Provide adequate resources to do the job. Allowing the people control over their own activities. 4

15 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. 6

16 Types of Sales Force Rewards
Motivation Intrinsic Extrinsic Sense of Accomplishment Pay Job security Promotion Personal Growth Opportunities Recognition 7

17 Financial Compensation: Straight Salary
Advantages Salaries are simple to administer Planned earnings are easy to project. Salaries can provide control over salespeople’s 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 experienced salespeople. Salaries represent fixed overhead. 8

18 Financial Compensation: Straight 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. 2/3 of firms with salary plus bonus impose caps but only 1/3 of those using salary plus commission plans do 8

19 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 8

20 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. 8

21 Outside reps and salespeople
Salespeople at Polyflex Film noted that after hitting quota they were eligible to receive an additional $20,000 on the next $1 million sold (depending on years of service and base salary). However, they were also aware that the company’s outside manufacturer’s reps would receive $50,000 for the same $1 million sale, and they didn’t need to hit any sales quotas to receive it.

22 Financial Compensation: Performance 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. 8

23 Financial Compensation: Combination 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. 8

24 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 salespeople’s ability to feel this a sense of accomplishment 9

25 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 9

26 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 10

27 Additional Issues in Managing Salesforce Reward Systems
Sales Contests Equal Pay Team Compensation Global Considerations Changing the Reward System 11

28 Sales Contests: Recommended 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. 11

29 Sales Contests: Recommended 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. 11

30 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 12

31 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. 12

32 Easy Check Law firm Akin & Smith requires its employees to check in and out from their desks at an electronic finger-sensor.  This enables the firm to know exactly how long lunch breaks are for employees. Such electronic tracking systems are becoming increasingly common.  Advocates say this prevents employees from padding their work sheets and helps identify the few truly slothful workers.  But critics claim that such intense monitoring of on-site presence can actually interfere with productivity, leaving less room for creativity and individual differences in the way people get their work done. Costs v Benefits

33 Sales people in 2002 Level Total Base salary Bonus + comm
Executive. $136k $90k $46k Top perform $140k $74k $66k Mid-level $ 83k $50k $33k Low-level $ 56k $37k $19k Average for all reps $97k $59k $38k Sales & Marketing Management May 2003

34 Rewarding salespeople
I've found salespeople fall into three categories. First, there are the hotshots -- the super salespeople who have all the answers, who claim to know more about your industry than you do, and who are impossible to teach or control. They thrive on commissions and don't want to be part of anyone's team. The second group consists of entrepreneurs, that is, salespeople who really want to be in business for themselves. They are also motivated by sales commissions, because they like to be independent and they aren't planning to stick around anyway. You may be able to convert some of them, but the majority will leave eventually and start their own companies. That is their destiny, and there's nothing you can do about it.

35 Rewarding salespeople
Then there's the third group, which is the largest -- people who do sales for a living simply because they like the work and they're good at it. They have no hidden agenda. They are motivated by the same things that motivate other employees. They just happen to sell. These people don't need to be on commission. Yes, they want to be compensated fairly, but they also want what most other people want -- to be part of a team. They want to belong. Inc, May 2003 | By: Norm Brodsky

36 Rewarding salespeople
So we start new salespeople with what they're used to: salary and commission. After two years, we know whom we want to keep. I'll then go to the person and say, "Listen, you've been here two years. We want you to be here forever. We'll buy out your commission and raise your salary, so you won't lose any income. In return, you'll get stability. Do you think you're going to have a good year? I'm willing to guarantee that you'll have a good year. And if you really do have a good year, I'll guarantee that next year will be even better. Inc, May 2003 | By: Norm Brodsky

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