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

Learning Objectives Explain the key components of motivation: intensity, persistence, and direction. Explain the difference between compensation rewards and non-compensation rewards. Describe the primary financial and non-financial compensation rewards available to salespeople. Describe salary, commission, and combination pay plans in terms of their advantages and disadvantages.

Learning Objectives Explain the fundamental concepts in sales-expense reimbursement. Discuss issues associated with sales contests, equal pay for equal work, team compensation, global compensation, and changing a reward system. List the guidelines for motivating and rewarding salespeople.

Motivating and Rewarding: Driving Product Mix Sales at FedEx Setting the Stage Motivating and Rewarding: Driving Product Mix Sales at FedEx What were the two primary problems FedEx faced regarding compensation? How did FedEx resolve the two problems?

Motivation Intensity Persistence Direction 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

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

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

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

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

Two Basic Categories of Rewards Compensation Rewards: Those given in return for acceptable performance or effort. They can include nonfinancial compensation. Non-Compensation Rewards: Those beneficial factors related to the work situation and well-being of each salesperson. 4

Optimal Salesforce Reward System Provides an acceptable ratio of costs and salesforce output in volume, profit, or other objectives. Encourages specific activities consistent with the firm's overall, marketing, and salesforce 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

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

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

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 arise if commissions are not limited by an earnings cap. 8

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

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

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

Financial Compensation: Combination Plans Advantages Combination pay plans are flexible. They are 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

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

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

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

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

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

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

DOs of Global Compensation Do involve reps from key countries. Do allow local managers to decide the mix between base and incentive pay. Do use consistent performance measures (results paid for) and emphasis on each measure. Do allow local countries flexibility and implementation. Do use consistent communication and training themes worldwide. 11

DON’Ts of Global Compensation Don’t design the plan centrally and dictate to local countries. Don’t create a similar framework for jobs with different responsibilities. Don’t require consistency on every performance measure within the incentive plan. Don’t assume cultural differences can be managed through the incentive plan. Don’t proceed without the support of senior sales executives worldwide. 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. Use job design and redesign as motivational tools. 12

Guidelines for Motivating and Rewarding Salespeople Provide adequate job information and assure proper skill development for the salesforce. 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