Module 9 Motivation and Reward System Management 1

Motivation and Reward Systems Motivation - Three Dimensions: Intensity The amount of mental and physical effort put forth by the salesperson Persistence The salesperson's choice to expend effort over a period of time Direction The choice by salespeople of where their efforts will be spent 2

Motivation and Reward Systems Motivation - Three Dimensions The motivation task is incomplete unless salespeople's efforts are channeled in directions consistent with the overall strategic role of the salesforce within the firm Self-motivation is the ideal 2

Motivation and Reward Systems Intrinsic vs. Extrinsic Motivation Intrinsically Motivated When doing the job is inherently rewarding Extrinsically Motivated When rewards such as pay and formal recognition act as motivators 3

Motivation and Reward Systems Reward System Management involves the selection and utilization of organizational rewards to direct salespeople's behavior toward the attainment of organizational objectives Organizational Rewards Those that are given in return for acceptable performance or effort; financial or nonfinancial Non-Compensation Rewards Factors related to the work situation and well-being of each salesperson 4

The Optimal Salesforce Reward System Balance of Organization, Individual, and Customer Needs 6

The Optimal Salesforce Reward System From the Organization's Perspective Provide an acceptable ratio of costs and salesforce output in volume, profit, or other objectives Encourage specific activities consistent with the firm's overall, marketing, and salesforce objectives and strategies Attract and retain competent salespeople, thereby enhancing long-term customer relationships Allow the kind of adjustments that facilitate administration of the reward system. 6

The Optimal Salesforce Reward System From the Organization's Perspective From Salesperson's Perspective Expect to be treated equitably Desire stability with incentives 6

The Optimal Salesforce Reward System From the Organization's Perspective From Salesperson's Perspective From Customer's Perspective Response to high pressure sales techniques Require increased service/quality 6

Types of Salesforce Rewards Six Most Popular Rewards (Exhibit 9.1) Pay Promotion Sense of Accomplishment Personal Growth Opportunities Recognition Job Security 7

Financial Compensation Straight Salary Advantages of Salary Plans Easy to administer Fixed costs facilitate the budgeting process Enhanced customer loyalty More control over nonselling activities Disadvantages of Salary Plans No incentive to improve performance Often based on seniority, not merit A burden of firms in declining industries 8

Financial Compensation Straight Salary Straight Commission 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 Advantages of Commission Plans Income linked to results, therefore an incentive to improve results Costs reduced during slow sales periods Less operation capital required Disadvantages of Commission Plans Less salesperson loyalty to company Less control of nonselling activities 8

Financial Compensation Straight Salary Straight Commission Performance Bonuses Group or Individual Typically for short-term objectives 8

Financial Compensation Straight Salary Straight Commission Performance Bonuses Combination Plans (Salary plus Incentive) Financial-Compensation Mix Advantages of Combination Plans Flexibility allows frequent reward of desired behavior May attract high-potential recruits Disadvantages of Combination Plans Complex to administer May encourage crisis-oriented objectives 8

Nonfinancial Compensation Opportunity for Promotion Sense of Accomplishment Opportunity for Personal Growth Recognition Job Security 9

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 Expense Account Padding 10

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

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. Provide adequate job information and assure proper skill development for the salesforce. Use job design and redesign as motivational tools. 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