SALES FORCE MOTIVATION AND COMPENSATION

Transcription

1 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. 1

2 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. 2

3 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. 3

4 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: 4

5 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. 5

6 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 "reactivated" when confronted with the impossibility of satisfying a higher level one. 6

7 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. 7

8 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 selfstarters and require a nominal external incentive to succeed and constantly challenge themselves to improve their performance. 8

9 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. 9

10 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. 10

11 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 11

12 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 12

13 With this we complete our session on chapter 10 SALES FORCE MOTIVATION AND. Next we move to Chapter 11 Sales Department Relations 13

14 Next Chapter 10 Sales Department Relations 14