Motivation and Reward System Management Module Eight

Motivation and Reward Motivation and Reward System ManagementSystem Management

Module EightModule Eight

Posters workPosters work

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

Motivation and RewardsMotivation and RewardsAn Expert’s Viewpoint:An Expert’s Viewpoint:

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

ActionAction

Motivation and RewardsMotivation and RewardsAn Expert’s Viewpoint:An Expert’s Viewpoint:

The company’s system for motivating and rewarding its The company’s system for motivating and rewarding its salespeople has been very successful. Five people salespeople has been very successful. Five people qualified for the Porsche in 2000, and eight qualified in qualified for the Porsche in 2000, and eight qualified in 2001. The company has grown to more than $100 2001. The company has grown to more than $100 million in revenues in just four yearsmillion in revenues in just four years

ResultResult

MotivationMotivation

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

IntensityIntensity PersistencePersistenceDirectionDirection

MotivationMotivationMotivationMotivation

Motivation - IntensityMotivation - Intensity

Intensity refers to the amount of mental and Intensity refers to the amount of mental and physical effort put forth by the salesperson.physical effort put forth by the salesperson.

PersistencePersistenceDirectionDirection


IntensityIntensity

Motivation - DirectionMotivation - Direction

The extent to which an individual determines and The extent to which an individual determines and chooses efforts focused on a particular goal.chooses efforts focused on a particular goal.



Motivation - PersistenceMotivation - Persistence

The extent to which the goal-directed effort is The extent to which the goal-directed effort is put forth over time.put forth over time.



really motivate those people!really motivate those people!

Does more effort lead to a Does more effort lead to a

higher level of performance?higher level of performance?

Why not?Why not?


Motivation: Intrinsic vs. ExtrinsicMotivation: Intrinsic vs. Extrinsic

When rewards When rewards such as pay such as pay

and formal and formal recognition act recognition act as motivatorsas motivators

When doing When doing the job is the job is inherently inherently motivating motivating ever happen?ever happen?

IntrinsicIntrinsic ExtrinsicExtrinsic

Noncompensation rewards:Noncompensation rewards:Those beneficial factors related to the work situation Those beneficial factors related to the work situation and well-being of each salesperson. Provide and well-being of each salesperson. Provide adequate resources to do the job. Allowing the adequate resources to do the job. Allowing the people control over their own activities.people control over their own activities.

Two Basic Categories of RewardsTwo Basic Categories of Rewards

Compensation rewards:Compensation rewards:

Those given in return for acceptable performance or Those given in return for acceptable performance or effort. They can include nonfinancial compensation effort. They can include nonfinancial compensation such as recognition and opportunities for growth and such as recognition and opportunities for growth and promotion.promotion.

OptimalOptimal Sales Force Reward System Sales Force Reward System

1.1. Provides an acceptable ratio of costs and sales Provides an acceptable ratio of costs and sales force output in volume, profit, or other objectivesforce output in volume, profit, or other objectives

2.2. Encourages specific activities consistent with the Encourages specific activities consistent with the firm's overall, marketing, and sales force objectives firm's overall, marketing, and sales force objectives and strategiesand strategies

3.3. Attracts and retains competent salespeople, Attracts and retains competent salespeople, thereby enhancing long-term customer thereby enhancing long-term customer relationshipsrelationships

4.4. Allows the kind of adjustments that facilitate Allows the kind of adjustments that facilitate administration of the reward system.administration of the reward system.

Types of Sales Force RewardsTypes of Sales Force Rewards


IntrinsicIntrinsic ExtrinsicExtrinsic

PayPay

PromotionPromotion

Sense of Sense of AccomplishmentAccomplishment

Personal Growth Personal Growth OpportunitiesOpportunities RecognitionRecognition

Job securityJob security

Financial Compensation:Financial Compensation:Straight SalaryStraight Salary

AdvantagesAdvantages- Salaries are simple to administerSalaries are simple to administer- Planned earnings are easy to project.Planned earnings are easy to project.- Salaries can provide control over salespeople’s Salaries can provide control over salespeople’s

activities, and reassignments are less of a problem.activities, and reassignments are less of a problem.- Salaries are useful when substantial development Salaries are useful when substantial development

work is required.work is required.

DisadvantagesDisadvantages- Salaries offer little incentive for better performance.Salaries offer little incentive for better performance.- Salary compression could cause perceptions of Salary compression could cause perceptions of

inequity among experienced salespeople.inequity among experienced salespeople.- Salaries represent fixed overhead.Salaries represent fixed overhead.

Financial Compensation:Financial Compensation:Straight CommissionStraight Commission

AdvantagesAdvantages- Income is linked directly to desired results.Income is linked directly to desired results.- Straight commission plans offer cost-control Straight commission plans offer cost-control

benefits.benefits.

DisadvantagesDisadvantages- Straight commission plans contribute little to Straight commission plans contribute little to

company loyalty.company loyalty.- Problems may also arise if commissions are not Problems may also arise if commissions are not

limited by an earnings cap. limited by an earnings cap. 2/3 of firms with 2/3 of firms with salary salary plus bonusplus bonus impose caps but only 1/3 of those using impose caps but only 1/3 of those using salary plus commissionsalary plus commission plans do plans do

Straight Commission: Plan VariationsStraight Commission: Plan Variations

1.1. Commission baseCommission base — volume or profitability— volume or profitability

2.2. Commission rateCommission rate — constant, progressive, or a — constant, progressive, or a combinationcombination

3.3. Commission splitsCommission splits — between two or more — between two or more salespeople or between salespeople and the salespeople or between salespeople and the employeremployer

4.4. Commission payout eventCommission payout event — when the order is — when the order is confirmed, shipped, billed, paid for, or some confirmed, shipped, billed, paid for, or some combination of these eventscombination of these events

Straight Commission: RatesStraight Commission: Rates

Constant rates:Constant rates:– Rates that remain unchanged over the pay period. Rates that remain unchanged over the pay period.

Pay is linked directly to performance. Pay is linked directly to performance.

Progressive rates:Progressive rates:– Rates that increase as salespeople reach pre-Rates that increase as salespeople reach pre-

specified targets.specified targets.

Regressive rates:Regressive rates:– Rates that decline at some predetermined point.Rates that decline at some predetermined point.

Outside repsOutside reps andand salespeoplesalespeople

Salespeople at Salespeople at Polyflex FilmPolyflex Film noted that after noted that after hitting quota they were eligible to receive hitting quota they were eligible to receive an additional $20,000 on the next $1 an additional $20,000 on the next $1 million sold (depending on years of service million sold (depending on years of service and base salary).and base salary).

However, they were also aware that the However, they were also aware that the company’s company’s outside manufacturer’s repsoutside manufacturer’s reps would receive $50,000 for the same $1 would receive $50,000 for the same $1 million sale, and they didn’t need to hit any million sale, and they didn’t need to hit any sales quotas to receive it.sales quotas to receive it.

Financial Compensation:Financial Compensation:Performance Performance BonusesBonuses

AdvantagesAdvantages- Organization can direct emphasis to what it Organization can direct emphasis to what it

considers important in the sales area.considers important in the sales area.- Bonuses are particularly useful for tying rewards to Bonuses are particularly useful for tying rewards to

accomplishment of objectives.accomplishment of objectives.

DisadvantagesDisadvantages- It may be difficult to determine a formula for It may be difficult to determine a formula for

calculating bonus achievement if the objective is calculating bonus achievement if the objective is expressed in subjective terms.expressed in subjective terms.

- If salespeople do not fully support the established If salespeople do not fully support the established objective, they may not exert additional effort to objective, they may not exert additional effort to accomplish the goal.accomplish the goal.

Financial Compensation:Financial Compensation:CombinationCombination Plans Plans

AdvantagesAdvantages- Combination pay plans are flexible.Combination pay plans are flexible.- They are also useful when the skill levels of the They are also useful when the skill levels of the

salesforce vary.salesforce vary.- Combination pay plans are attractive to high-Combination pay plans are attractive to high-

potential but unproven candidates for sales jobs.potential but unproven candidates for sales jobs.

DisadvantagesDisadvantages- Combination pay plans are more complex and Combination pay plans are more complex and

difficult to administer.difficult to administer.- A common criticism of combination pay plans is that A common criticism of combination pay plans is that

they tend to produce too many salesforce objectives.they tend to produce too many salesforce objectives.

NonfinancialNonfinancial Compensation Compensation

Opportunity for Promotion:Opportunity for Promotion:– The ability to move up in an organization along The ability to move up in an organization along

one or more career pathsone or more career paths

Sense of Accomplishment:Sense of Accomplishment:– The internal sense of satisfaction from The internal sense of satisfaction from

successful performancesuccessful performance– Sales managers should facilitate salespeople’s Sales managers should facilitate salespeople’s

ability to feel this a sense of accomplishmentability to feel this a sense of accomplishment

Nonfinancial CompensationNonfinancial Compensation

Opportunity for Personal Growth:Opportunity for Personal Growth:– Access to programs that allow for personal Access to programs that allow for personal

development (e.g., tuition reimbursement, development (e.g., tuition reimbursement, leadership development seminars)leadership development seminars)

Recognition:Recognition:– The informal or formal acknowledgement of a The informal or formal acknowledgement of a

desired accomplishmentdesired accomplishment

Job Security:Job Security:– A sense of being a desired employee that comes A sense of being a desired employee that comes

from consistent exceptional performancefrom consistent exceptional performance

Sales ExpensesSales Expenses

1.1. A definition of which expenses are reimbursableA definition of which expenses are reimbursable

2.2. The establishment of expense budgetsThe establishment of expense budgets

3.3. The use of allowances for certain expendituresThe use of allowances for certain expenditures

4.4. Documentation of expenses to be reimbursedDocumentation of expenses to be reimbursed

Controls used in the sales expense Controls used in the sales expense reimbursement process include:reimbursement process include:

Additional Issues in Managing Additional Issues in Managing Salesforce Reward SystemsSalesforce Reward Systems

• Sales ContestsSales Contests• Equal PayEqual Pay• Team CompensationTeam Compensation• Global ConsiderationsGlobal Considerations• Changing the Reward SystemChanging the Reward System

Sales Contests:Sales Contests:Recommended GuidelinesRecommended Guidelines

1.1. Minimize potential motivation and morale problems Minimize potential motivation and morale problems by allowing multiple winners. Salespeople should by allowing multiple winners. Salespeople should compete against individual goals and be declared compete against individual goals and be declared winners if those goals are met.winners if those goals are met.

2.2. Recognize that contests will concentrate efforts in Recognize that contests will concentrate efforts in specific areas, often at the temporary neglect of other specific areas, often at the temporary neglect of other areas. Plan accordingly.areas. Plan accordingly.

Sales Contests:Sales Contests:Recommended GuidelinesRecommended Guidelines

3.3. Consider the positive effects of including nonselling Consider the positive effects of including nonselling personnel in sales contests.personnel in sales contests.

4.4. Use variety as a basic element of sales contests. Use variety as a basic element of sales contests. Vary timing, duration, themes, and rewards.Vary timing, duration, themes, and rewards.

5.5. Ensure that sales contest objectives are clear, Ensure that sales contest objectives are clear, realistically attainable, and quantifiable to allow realistically attainable, and quantifiable to allow performance assessment.performance assessment.

Guidelines for Motivating and Guidelines for Motivating and Rewarding SalespeopleRewarding Salespeople

1.1. Recruit and select salespeople whose personal Recruit and select salespeople whose personal motives match the requirements and rewards of motives match the requirements and rewards of the job.the job.

2.2. Attempt to incorporate the individual needs of Attempt to incorporate the individual needs of salespeople into motivational programs.salespeople into motivational programs.

3.3. Use job design and redesign as motivational toolsUse job design and redesign as motivational tools

Guidelines for Motivating and Guidelines for Motivating and Rewarding SalespeopleRewarding Salespeople

4.4. Provide adequate job information and assure Provide adequate job information and assure proper skill development for the sales force.proper skill development for the sales force.

5.5. Concentrate on building the self-esteem of Concentrate on building the self-esteem of salespeople.salespeople.

6.6. Take a proactive approach to seeking out Take a proactive approach to seeking out motivational problems and sources of motivational problems and sources of frustration in the salesforce.frustration in the salesforce.

Easy CheckEasy CheckLaw firm Law firm Akin & SmithAkin & Smith requires its employees to requires its employees to

check in and out from their desks at an electronic check in and out from their desks at an electronic finger-sensor. This enables the firm to know finger-sensor. This enables the firm to know exactly how long lunch breaks are for employees.exactly how long lunch breaks are for employees.

Such electronic tracking systems are becoming Such electronic tracking systems are becoming increasingly common. Advocates say this increasingly common. Advocates say this prevents employees from padding their work prevents employees from padding their work sheets and helps identify the few truly slothful sheets and helps identify the few truly slothful workers. But critics claim that such intense workers. But critics claim that such intense monitoring of on-site presence can actually monitoring of on-site presence can actually interfere with productivity, leaving less room for interfere with productivity, leaving less room for creativity and individual differences in the way creativity and individual differences in the way people get their work done.people get their work done.

Costs Costs vv Benefits Benefits

Sales people in 2002Sales people in 2002

LevelLevel TotalTotal Base salaryBase salary Bonus + commBonus + comm• Executive. $136k $90k $46kExecutive. $136k $90k $46k• Top perform $140k $74k $66kTop perform $140k $74k $66k• Mid-level $ 83k $50k $33kMid-level $ 83k $50k $33k• Low-level $ 56k $37k $19kLow-level $ 56k $37k $19k

Average for all repsAverage for all reps• $97k $59k $38k$97k $59k $38kSales & Marketing Management May 2003Sales & Marketing Management May 2003

Rewarding salespeopleRewarding salespeople

• I've found salespeople fall into three categories. First, I've found salespeople fall into three categories. First, there are the there are the hotshotshotshots -- the super salespeople who -- the super salespeople who have all the answers, who claim to know more about have all the answers, who claim to know more about your industry than you do, and who are impossible to your industry than you do, and who are impossible to teach or control. They thrive on commissions and don't teach or control. They thrive on commissions and don't want to be part of anyone's team.want to be part of anyone's team.

• The second group consists of The second group consists of entrepreneursentrepreneurs, that is, , that is, salespeople who really want to be in business for salespeople who really want to be in business for themselves. They are also motivated by sales themselves. They are also motivated by sales commissions, because they like to be independent and commissions, because they like to be independent and they aren't planning to stick around anyway. You may be they aren't planning to stick around anyway. You may be able to convert some of them, but the majority will leave able to convert some of them, but the majority will leave eventually and start their own companies. That is their eventually and start their own companies. That is their destiny, and there's nothing you can do about it.destiny, and there's nothing you can do about it.


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

• Inc, May 2003 || By:By: Norm Brodsky Norm Brodsky


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

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Motivation and Reward System Management Module Eight