9 – Motivating and Compensating Sales Personnel

Introduction

It has monotonous work, and he quickly grows tired of it and wishes for a change. “The primary purpose of motivation is to aid salesmen in satisfying their goals by stimulating them to improve their work efficiency,” says one expert. Motivation can be defined in various ways; it is a psychological characteristic that aids the salesperson in goal-directed behaviour. The demands of the salesperson may be met through motivation. Financial and non-financial incentives can be used to motivate employees. It is a continual process as the salesperson’s expectations change occasionally.

The primary goals of motivation are as follows:

1. To encourage salespeople to enhance their efficiency.

2. To build a friendly relationship between supervisors and salespeople.

3. Maintaining strong morale among salespeople.

4. Seek salesmen’s cooperation in meeting the sales target.

9.1 Need for Motivation

1. Motivation is especially important in sales management since the nature of the job differs from that of the other members of the organization.

2. The profession has numerous challenges for the salesperson because most visiting consumers do not entertain the salesperson by giving orders.

3. Because the market and the traders are always around him, the salesman has no family life.

4. He must contend with fierce rivalry from competing products. A salesperson’s working hours are not set.

5. A salesman’s activities are repeated, and he becomes unsatisfied with repeating his work, which becomes quite tedious.

6. He is under pressure from the customer (wholesalers, retailers, and consumers) and his boss, who wants the best bargain possible. The salesperson is caught between the two sides.

7. Excessive travel and time away from home cause health difficulties, which have a long-term impact on the salesman.

8. Working in fields prevents the salesman from interacting with his coworkers or organisation members, and he is stationed in far-flung locations for most of the year. As a result, he lacks group relationships and feels isolated most of the time.

9. He does not work at full capacity and settles for mediocre performance to keep his job. With the right motivation, this can be overcome.

10. Most salespeople have a range of demands, including physiological and social needs, and they believe they will be unable to meet those needs if they continue to work in sales, which gives them fewer opportunities to socialise with their families.

Motivation helps to improve a salesman’s morale; it is a driving factor for the salesman. Motivation can overcome the salesman’s tiredness and inactivity, allowing him to function to the best of his capacity.

9.2 Steps in Motivation

Salespeople might be motivated by following logical processes in a specific order.

1. Objectives

The salesperson must set motivational objectives, which may differ for individual salesmen and different areas. However, the primary goal of motivation is to encourage the salesperson to give his or her all, as stated earlier in the course.

2. Needs

Salesmen’s needs must be met, which may be accomplished by delving into the depths of their expectations, their position, their mental attitude, and the distinctions between individual salesmen.

3. Motivation of Salesmen

A salesperson can be motivated by financial or non-financial incentives or both; when deciding on the latter, the organisation’s financial condition must be considered. Changes in territory or area of employment can also drive salespeople. For non-monetary incentives, salespeople can be given additional requirements, such as sending them to training with their families or taking them on a holiday trip to a beautiful location.

4. Communication

It is essential that the communication is previously known, that it is necessary, and that it provides specific instructions to the salesman. Both the company’s and the salesman’s interests must be kept in mind at all times to benefit both parties.

5. Feedback

The outcome of the motivating programme must be examined to determine its efficacy. Other considerations are building team spirit and the growth of work satisfaction, which are required for the program’s success.

9.3 Theories of Motivation

For many years, psychologists and others have studied motivation. A lot of hypotheses have emerged that are relevant to salesperson motivation. These are Maslow’s (1943), Herzberg et al’s (1959), Vroom’s (1964), and Likert’s (1964) theories (1961).

9.3.1 Maslow’s Hierarchy of Needs

According to Maslow, needs create a hierarchy in that when no requirements are met, a person focuses on his or her physiological needs. When these demands are met, safety needs become predominant and important predictors of behaviour. When these conditions are met, belongingness becomes vital – and so on up the ladder.

Maslow’s Hierarchy of Needs

 

 

 

 

 

 

 

 

 

 

 

 

Although Maslow’s idea that one set of demands becomes relevant only after lower-level needs are met has been criticised, the theory has significance to sales force motivation. For starters, it emphasises the presumably obvious notion that a fulfilled need is not a driver of behaviour. Thus, increased payments may not affect motivation for a salesperson who already obtains a more-than-adequate salary level. Second, the theory argues that what works as an incentive for one salesperson may not work for another. This is due to the likelihood that different salespeople will have different needs.

A precise assessment of the demands of the individual salesmen under the manager’s supervision results in compelling motivation. One salesperson’s primary need may be reassurance and confidence-boosting, which may motivate him or her. For somebody with a high demand for esteem but a low work rate, the sales manager may try to encourage them by exhibiting their relatively bad sales performance to colleagues at a sales meeting.

9.3.2 Herzberg

According to Herzberg’s dual factor theory, some variables might produce positive discontent but cannot inspire (hygiene factors), and others might not cause positive motivation. The hygiene issues were physical working circumstances, security, pay, and interpersonal interactions. According to Herzberg, directing managerial attention to these issues would raise motivation to a “theoretical zero” but would not result in positive motivation. True motivators must be given priority if this goal is to be met. These included the nature of the labour itself, which allows the person to achieve something concrete, recognition of achievement, the person’s duty, and the interest value of the work itself.

 

 

 

 

 

 

 

 

 

 

 

 

Salary was included as a hygiene issue rather than a motivator, which drew criticism from sales managers who had previously believed that commission paid to their salespeople was a potent motivation in practice. To some extent, Herzberg accommodated this viewpoint by suggesting that more significant income through higher commission was a motivation due to its automatic acknowledgement for sales performance.

The salesperson is fortunate in that success is directly evident in the form of increased sales (except in missionary selling, where orders are not taken, e.g., pharmaceuticals, beer and selling to specifiers). However, the level of responsibility given to salespeople varies greatly. Giving salespeople the right to issue credit (up to a specific amount) with discretion is one way to give them more responsibility and motivate them. According to the results of an experiment conducted by Paul, Robertson, and Herzberg (1969) with a group of British salespeople, greater responsibility was bestowed on salespeople by such improvements, which led to higher sales success.

Practitioners have generally embraced Herzberg’s theory; however, academics have criticised it for its approach and oversimplification (see Dessler, 1979). The theory has significantly contributed to our knowledge of motivation at work, particularly by applying Maslow’s hierarchy of needs theory to the workplace and emphasising the importance of previously undervalued job content aspects.

9.3.3 Vroom’s Expectancy Theory

Essentially, this theory contends that a person’s incentive to exert effort depends on his expectations of success. Vroom’s thesis was founded on anticipation, instrumentality, and valence.

Expectancy: Expectancy refers to a person’s perception of the relationship between effort and performance, i.e., the degree to which a person believes that increasing effort will result in higher performance.

Instrumentality indicates a person’s perspective of the relationship between performance and reward, such as how much a person feels that improved performance will lead to promotion.

Valence is the value that a person places on a specific reward. Some people highly prize promotion, while others may find it of little value. Thus, if a salesperson feels that by working harder, he or she will increase sales (high expectation), that higher sales will result in higher commission (high instrumentality), and that higher commission is very significant (high valence), a high level of motivation should result.

 

 

 

 

 

 

 

 

Various salesmen will have different valences (values) for the same prize. Some may place a high value on more excellent money, while others may place a lower value on it; for some, a sense of success and recognition may be pretty significant, while for others, it may be much less. Furthermore, various salespeople may have varied perspectives on the relationship between performance and compensation, as well as effort and performance. One of the responsibilities of sales management is to establish and explain to the sales force the performance criteria that are vital in assisting the firm in meeting its objectives and linking rewards to these criteria. Furthermore, this theory supports the assumption that to be effective motivators, performance targets, such as sales quotas, should be considered attainable (high expectancy) by each sales worker. Otherwise, the first link in the expectancy model will be severed. Finally, this model gives a diagnostic framework for analysing motivational issues with individual salespeople and explains why specific managerial behaviours can increase motivation. Training in sales abilities, for example, can boost motivation by raising expectations.

9.3.4 Adam’s Theory of Inequity

When an individual’s effort or performance on the job exceeds the reward he or she receives, feelings of inequity (unfairness) may occur. Salespeople who believe they offer more to the organisation than others can expect to be compensated more generously. This is the essence of Adam’s idea of unfairness.

A salesperson can detect injustice in the following areas:

1. Monetary rewards
2. Workload
3. Promotion
4. Degree of recognition
5. Supervisory behaviour
6. Targets
7. Tasks

A salesperson who perceives large disparities in any of these areas may have lower motivation due to a sense of unfairness. Tyagi (1990) investigated the impact of perceived disparities (rewards and favouritism) on the motivation of life insurance salespeople. The findings revealed that sentiments of unfairness hurt motivation in all categories studied (monetary, promotion, recognition, supervisory behaviour, and task inequities). Inequity in monetary rewards had a particularly substantial influence on motivation. The inference is that sales managers must watch their sales crew for any signs of unfairness. This can be done informally at sales meetings or via questionnaires. Some sales organisations conduct quarterly surveys of their salespeople to assess their perceptions of unfairness and the overall success of the company’s motivational campaign.

Motivation is frequently associated with incentives, but Adam’s research shows that eliminating disincentives (e.g., injustices, unfair treatment) can have an equally profound effect.

9.3.5 Likert’s Sales Management Theory

In the pantheon of sales management theories, Likert’s framework stands as a stalwart, offering a nuanced perspective on the orchestration of managerial dynamics within the sales domain. Rensis Likert, a well-known organizational psychologist, introduced this theory, which clarifies the nuances of efficient leadership and management within the sales ecosystem. Below, we embark on a detailed exploration of Likert’s Sales Management Theory, dissecting its key tenets and implications.

The Foundation:

At its core, Likert’s theory is premised on a participative management model. It posits that the efficacy of sales management is contingent upon the degree of involvement and collaboration between leaders and subordinates. The framework delineates four distinct management systems, each embodying varying levels of employee participation and managerial control.

 

 

 

 

 

 

 

 

 

 

1. Exploitative-Authoritative System:

-Characterized by a top-down approach.

-Decisions emanate solely from upper management.

-Limited employee input or feedback is solicited.

2. Benevolent-Authoritative System:

-A semblance of concern for employees is introduced.

-Decision-making remains centralized, albeit with a slight openness to suggestions.

-A hierarchical structure persists.

3. Consultative System:

-A marked shift towards employee involvement.

-Decision-making includes input from both management and subordinates.

-Enhanced communication channels foster collaboration.

4. Participative Group System:

-The apex of Likert’s model is characterized by shared decision-making.

-Open communication channels at all levels.

-Mutual trust and respect form the bedrock of this system.

Key Features:

1. Communication:

• Central to Likert’s theory is the emphasis on open and transparent communication.
• The flow of information is bidirectional, fostering a culture of dialogue and understanding.

2. Motivation:

• Likert posits that participative management engenders higher levels of motivation among employees.
• Recognition of individual contributions becomes pivotal in fostering a motivated workforce.

3. Leadership Style:

• Likert underscores the importance of supportive leadership.
• Influential leaders facilitate collaboration, inspire trust, and engender a sense of shared purpose.

4. Conflict Resolution:

• The theory acknowledges the inevitability of conflicts.
• Likert advocates for a participative approach to resolving conflicts, wherein all stakeholders have a voice.

Implications for Sales Management:

1. Team Dynamics:

• The participative nature of Likert’s theory nurtures a cohesive team dynamic.
• The synergy between management and subordinates becomes a catalyst for success.

2. Adaptability:

• Likert’s framework champions adaptability in the face of changing circumstances.
• Organizations can navigate uncertainty more effectively through a participative management lens.

3. Employee Satisfaction:

• A core tenet posits that satisfied employees yield better outcomes.
• Likert’s model aims to create a work environment where employees feel valued and integral to decision-making.

In conclusion, Likert’s Sales Management Theory transcends the conventional paradigms, offering a dynamic blueprint for fostering effective leadership and cohesive team dynamics within the intricate tapestry of sales management. The participative ethos espoused by the theory enriches organisational culture and serves as a compass guiding businesses through the ever-evolving landscape of the sales domain.

9.3.6 Churchill, Ford, and Walker Sales Force Motivation Model

Churchill, Ford, and Walker (1985) constructed a model of sales force motivation that incorporated some of Herzberg and Vroom’s theories, as seen in the picture below. This implies that the stronger the salesperson’s motivation, the larger the effort, the higher the performance. This improved performance will result in more prominent awards and greater job satisfaction. Increased satisfaction will complete the circle, which will inspire even more motivation.

The ramifications for sales managers are as follows:

persuade salespeople that working harder or being coached to work “smarter” will result in more sales (e.g., more efficient call planning and developing selling skills).

Persuade salespeople that the benefits of higher performance are worth the extra effort. This indicates that the sales manager should deliver valuable rewards and try to’sell’ the value of such benefits to the sales team. For example, a sales manager may inflate the value of a holiday award by mentioning how much fun he or she had while there.

They also discovered that the value of rewards varied depending on the type of salesperson. Older salesmen with large families placed a higher priority on financial benefits. Younger, better-educated salesmen with no or few children tended to place greater importance on higher-order rewards (recognition, like and respect, and a sense of accomplishment).

9.4 Financial Motivational Techniques

Most salespeople choose the cash advantage since the needs at the lower levels of the organisation are more physiological and safety-related than esteem and self-actualization-related. At all levels, social needs are also required. Among the financial incentives are:

-Higher salary

-Increased commission

-Additional monetary incentives

-Profit sharing

-Travel allowance

-Bonuses, etc.

After a while, money incentives become less effective, and the salesperson turns to non-financial incentives, which have been extensively discussed.

9.5 Non-financial Motivational Technique

Because of the particular elements of a salesperson’s employment, simple motivating strategies such as merely cash incentives appear to be a poor means of motivation beyond physiological and safety needs.

Non-monetary incentives thus constitute an important component of a company’s motivation mix. As Dawson points out, “Business is on the threshold of a
a new era of human and social concern, which will inevitably result in greater attention to total human resource development by sales management”.

Some of the unusual factors that play a specific role in sales force motivation are addressed further below.

1. Meeting between Manager and Sales Force

These are highly valued by sales managers in terms of motivating their sales teams because they allow managers to meet their sales force in the field, at headquarters, and sales meetings/conventions.

These sessions enable the sales manager to gain an understanding of each salesperson’s personality, needs, and difficulties. The manager may thus better understand the causes of demotion/frustration in particular salespeople and respond in a way that takes into account the salesperson’s requirements, difficulties, and personality. Thus, sales skills can be enhanced and confidence can be increased. According to Likert, when a sales manager fosters an “open” management style, salesmen are encouraged to disclose their challenges and possibilities so that the entire sales team benefits from each salesman’s experience.

This leads to increased group loyalty and enhanced performance. The marketing team’s success can be easily attributed to the open-door policy adopted by Indian companies. As one executive put it, “I know all my team of 166 sales representatives personally, by name and make it a point to keep in touch with all of them. They can walk in any time with their problems and they have got the confidence that most of their problems will be handled to their satisfaction”.

2. Clarity of Job

Clarity about the profession and what is expected of the salesperson is a powerful incentive. When the objectives are adequately quantified and specified, as well as correctly connected and linked with the reward and recognition, they act as a source of incentive for the salesperson.

3. Sales Targets or Quotas

To be effective in motivating a salesperson, a sales target or quota must be perceived as fair and reachable while also posing a challenge to him. Allowing the salesperson to assist in quota formulation is usually a good idea because he should think the quota is fair. However, setting quotas is ultimately the duty of the sales manager, who will necessarily be bound by overall corporate objectives. If sales are to increase by 10%, salesmen’s quotas must be adjusted by this goal. Variations around this average value will occur as a result of the sales manager’s knowledge of individual salespeople and changes in commercial activity within each territory; for example, the liquidation of a significant customer in a territory may result in a lower quota. Quotas can be established based on rupee sales, unit volume, margin, selling effort or activity, and product kind. Achieving a sales target or quota usually results in some sort of financial benefit for the salesperson.

4. Sales Contest

The sales contest is an effective strategy for motivating salespeople. The goal of a sales contest differs greatly. It may encourage a high level of sales in general to boost sales of a slow-moving product or to reward the acquisition of new customers. It serves as a motivator to improve performance and achieve more pleasant results. However, there are a few drawbacks to a sales competition. One drawback is that it may encourage cheating. For example, in one company that used a sales contest to encourage sales at a series of promotional events with its dealers across the country, salespeople “stored up” orders achieved before the event to enhance the apparent number of orders accepted during the event. Furthermore, by pitting salesperson against salesperson, contests undermine the attitude of mutual aid and cooperation that might increase sales force effectiveness.

5. Sales Conventions and Conferences

These are the tools for motivating a group. They allow salespeople to participate, enjoy social satisfaction, and express their opinions on issues that directly influence their profession. They encourage teamwork, break down social barriers, and inspire and boost salespeople’s morale. Most Indian organisations are now using this strategy to inspire their sales team.

6. Positive Outcome

The positive effect method is also a significant tool for inspiring salespeople to perform at their highest level.

Proper use of praise, positive feedback, and human warmth and compassion can motivate people to perform to their full potential. This must be done in a genuine manner and not in an openly self-serving manner.

Another type of positive effect motivation happens through small group and peer relationships. Friendship, support, and comradeship are regularly used as vehicles for instilling favourable attitudes about the organisation and the job.

8. Managerial Leadership Style

The manager’s leadership style is crucial in encouraging the salesperson. Influence through referent power is referred to as inspirational leadership. Identification of charismatic charm is an important tool in management’s motivational strategy. It instils images and expectations of extreme effort, sacrifice, achievement, and “the right stuff” in general. It is carried out by using professional speakers’ customised audio and video cassettes meant to arouse and stimulate salespeople. It also attempts to develop and propagate specific company myths and success stories, which indirectly drive salespeople to perform to their full potential.

9. Freedom to Work

The salesperson must be provided with a suitable amount of flexibility and discretion to accomplish his onerous duties and responsibilities. According to Likert’s research, a lack of discretion has a detrimental impact on employee job satisfaction. Allowing salespeople to establish their call patterns, giving them more choice over the types of promotional packages they give to their consumers, and so on can help them achieve discretion and independence.

Freedom or autonomy meets psychological demands and is similar to power pay (which is a reward), elevating the importance of the salesperson’s role in the organisation.

10. Reward and Recognition

Although sales quotas, sales contests, conventions, and conferences have positive spillover effects, these are temporary methods of motivating salespeople. On the other hand, rewarding and recognising salespeople’s accomplishments is a more long-lasting and cost-effective source of incentive. Some methods of recognising and honouring salespeople include bestowing the title of “salesman of the month/year,” congratulatory telegrams from senior management, sales trophies, offering memberships in social clubs, mention in the company’s newsletter, certificates, and so on. Recognition and honour meet the needs of salespeople for self-esteem and self-respect. These are similar to status pay in that they are a public acknowledgement of the value that management places on an individual.

11. Persuasion

Persuasion is a popular and suggested method for producing high levels of motivation. Managers in this situation use rational arguments to persuade salespeople that acting in a preferred manner is in their best interests. Persuasion has the advantage of convincing people that their actions were taken of their own volition. This results in higher levels of self-direction than reward or coercive modes of influence, in which one perceives acting more out of external compulsion than internal volition.

9.6 Financial Incentives

Now we’ll look at the monetary parts of the incentive strategy. Financial incentives are stimulating, but they differ depending on the salesperson’s hierarchical standing. The need is greatest at the bottom of the hierarchy. Financial incentives not only keep salespeople on the job, but also motivate them to contribute to the company’s growth and, as a result, grow personally. It is also a significant managerial tool for controlling and directing sales forces to meet sales targets.

A badly conceived or managed financial plan may encourage unions to organise sales forces, as happened in certain Indian pharmaceutical corporations. As a result, a reasonably reasonable financial incentive plan plays a critical role in sales force management and motivation. A sales force cannot be called well-managed unless a well-developed and well-executed company plan exists.

A good compensation plan is difficult to create. It is learned through experience and varies from company to firm. It is created with the company’s goals, capabilities, and requirements in mind. The firm wants to boost sales and profits at the lowest possible cost, but the salesperson wants to maximise his earnings. An efficient compensation strategy considers both parties. As a result, a compensation plan must recruit, retain, and motivate skilled sales staff while simultaneously working within the constraints of the company’s budget.

Money, according to motivation theories, has limited potential as a motivator. Nonetheless, the sales force must be compensated to maintain high morale and contribute to the greatest extent possible. A properly designed sales compensation plan serves three motivational functions:

1. Pay a living wage.

2. Align pay levels with performance.

3. Provide a mechanism for demonstrating the alignment of the company’s and individual goals.

A well-designed sales compensation plan addresses a company’s unique needs and difficulties. The direct wage is the same for all organisations, but the indirect incentives and criteria vary.

A salesforce embodies a company’s philosophy and business ideas. It improves the company’s image among its customers. Building and maintaining a sales staff is consequently critical, and this is accomplished through pay plans and motivation.

Sales compensation plans supplement, rather than replace, effective incentives. The fundamental appropriateness of a compensation plan is critical, as is how it is executed and administered.

In established companies, it is rarely essential to construct new sales compensation plans, and sales executives are primarily concerned with adjusting existing programmes. The majority of the adjustments are minor and implemented to bring the strategy and marketing objectives more in line.

Significant modifications to the compensation scheme are uncommon. Salespeople, like most people, are resistant to radical change, especially when it asks them to abandon long-held practices.

How Should Changes Be Implemented?

Some bosses believe that gradually implementing changes minimises disruption to established behaviours and evokes less pushback from sales employees. Others argue that big adjustments should be implemented as soon as possible because constant change degrades salespeople’s morale. Whether a change should be made in a single step or several steps is dependent on the specific scenario, and no straightforward generalisation is attainable.

There are two scenarios in which compensation programmes must be completely overhauled.

1. A corporation with a sales team that already has low morale, possibly as a result of the current compensation structure.

2. When a corporation anticipates the development of new and distinct markets.

In all circumstances, management must examine a variety of criteria, including consumer type, marketing channels, characteristics, level of competition, market size, and the difficulty of the selling task.

9.7 Requirements for an Effective Sales Compensation Plan

A good sales compensation plan must meet the following seven criteria:

1. It offers a living salary in the form of a guaranteed income.

2. The plan is consistent with the rest of the motivational programme.

3. The plan is equitable in that it does not penalise salespeople for variables beyond their control. Sales workers are paid equally for equal performance within the confines of security and other unique situations.

4. It is simple for salespeople to understand—they can calculate their own earnings.

5. The plan adjusts pay based on performance adjustments.

6. It is cost-effective to administer.

7. It aids in the achievement of the sales organization’s objectives.

9.8 Designing a Compensation Package

A strong compensation plan is built on a firm foundation, thus it necessitates a systematic approach to ensure that no critical stage is ignored.

1. Defining a Sales Job

a. Examine the nature of the sales job and adjust it if necessary.

b. Examine the impact of sales department objectives on the salesperson’s job.

c. Look for sales volume objectives, such as rupees, product units, or the number of dealers and distributors, and translate them into what is required of sales professionals, both as a group and individually.

d. The influence of sales-related marketing policies is assessed (like, credit policies, price policies, etc.)

e. Take into account the present and proposed advertising and sales promotional programmes, as they help to describe the nature of the salesperson’s goals, obligations, and activities.

2. Consider the General Compensation Structure of the Company

The majority of businesses utilise job evaluation tools to determine the relative worth of particular positions. Its goal is to achieve equitable remuneration relationships between jobs. There are four approaches for evaluating job candidates. Simple rating and categorization or grading are two non-quantitative methods. The point system and the factor comparison approach are the other two quantitative methods.

3. Simple Ranking

This is a low-cost way of job appraisal. There is no attempt to discover the key features inherent in the job; rather an overall assessment of the relative worth of different jobs is made.

4. Classification or Grading

Jobs are rated using this technique based on job responsibilities, necessary skills, supervision given and received, exposure to unfavourable and hazardous working conditions, and other comparable factors. In terms of salary, all positions within a grade are treated the same.

5. Point System

It entails establishing criteria that are common to most jobs. Specific factors include mental and physical abilities, responsibility, received and given supervision, personality requirements, and the minimal education required. Each factor is assigned a minimum and maximum number of points, with distinct ranges linked with the components’ relative importance. The use of point values allows for the determination of the gap or distance between job classifications.

6. Factor Comparison Method

This method is similar to the point system; however, it is more sophisticated. It employs a rating and cross-comparison technique to reduce mistakes due to poor judgement. A small number of essential jobs that are representative of similar jobs throughout the organisation are analysed. This is accomplished by organising them in descending order of importance, from highest to lowest for each factor. As a check against this subjective evaluation, the compensation money given for each task is assigned to the factors, which automatically creates the association between occupations for each factor. The judgmental rating and the ranking based on compensation allocation are compared, and any discrepancies are rectified, or the jobs are deleted from the important list. Money amounts allotted to the many variables that comprise essential tasks and extra jobs are evaluated on this basis, and their monetary values for each factor are interpolated into the scale. This process is repeated until all jobs have been assessed.

9.9 Examine Compensation Patterns in the Community and Industry

Because sales compensation levels are affected by external supply and demand factors, it is critical to analyse the current compensation patterns in the community and sectors. Four questions must be answered by management.

1. What types of compensation mechanisms are in use?

2. What is the average pay for comparable positions?

3. How are other businesses faring with their plans?

4. What are the advantages and disadvantages of deviating from industrial or community patterns?

5. What kind of salespeople are needed to be both productive and cost-effective?

Determining Compensation Level

Management must decide how much remuneration a salesperson should receive on average. Individual negotiating or arbitrary judgment may be used to determine the compensation level. Management should determine whether the current sales force is of the calibre that the organisation desires. If it is too low, or if the company should employ people of a lower grade than those now employed, management should evaluate the market worth of the desired grade of sales staff.

Management assesses an individual’s worth by calculating the amount of sales and profit that would be lost if a specific salesperson departed. Another factor to examine is the quantity of compensation that the organisation can afford to pay.

Provide for the Various Compensation Elements

A sales compensation plan can have up to four fundamental components:

1. A fixed element, such as a salary or a drawing account, to offer income stability.

2. A variable element that serves as an incentive (for example, a commission, bonus, or profit-sharing arrangement).

3. A fringe or plus factor features, such as paid vacations, illness and accident benefits, life insurance, and pensions.

4. A provision for expense repayment or payment of expense allowances.

Management chooses the element mix that best fits the selling circumstance. The ratio of different elements to one another varies. However, most businesses divide the fixed and variable pieces by 60:40 or 80:20.

Special Company Needs and Problems

A sales compensation plan is not a cure-all for marketing maladies, but it is frequently possible to design one that improves marketing performance. If a company’s profitability is low because salespeople overemphasise low-margin items while ignoring more profitable products, it may be conceivable, despite the existence of other managerial options, to tweak the incentive plan to encourage the selling of more balanced orders. Variable commission rates, for example, could be set on different products, with higher fees applied to a neglected product.

As another example, a company may have a “small orders” problem. Compensation schemes can be designed to encourage salespeople to write greater orders. Higher commission rates can be applied to larger orders if commission rates are graduated.

Consult the Present Sales Force

Because many issues stem from the remuneration plan, management should communicate with current sales employees. Management should encourage salespeople to express their likes and dislikes about the present plan and to provide suggestions for modifications. Criticism and ideas are evaluated about the plan or proposals under consideration.

Reduce Tentative Plan to Writing and Pre-test it

The draught plan is written down for clarification and to remove inconsistencies. It is then pre-tested. The amount of testing necessary is determined by how much the new plan differs from the current one. The larger the disparity, the more extensive the testing. Compensation plan pre-tests are nearly always mathematical and computerised. If the sales pattern has shown significant swings, hypotheses are established for periods representing average, good, and dismal business.

Then a glimpse into the future is taken. New and old plans are applied to future periods using sales projection data. The plan is tested for both the sales force as a whole and for individuals dealing with unusual selling situations. The analysis determines whether the plan allows for earnings that are by the intended compensation level. If flaws are discovered, the plan may not be to blame; they could be due to errors in sales estimates, budgets, or quotas.

Several territories representing various sets of selling conditions are chosen for a pilot test. The recommended plan is implemented in each one for a long enough period to determine how well it functions under existing conditions.

Revise the Plan

The strategy is then amended to address any flaws or problems. If the changes are significant, the updated plan is subjected to additional pre-testing and possibly another pilot test. However, if the changes are modest, no more testing is required.

Implement the Plan and Provide for Follow-up

When the new plan is executed, it is explained to the sales team. Management must persuade them of its fundamental justice and rationality. Details of modifications from the previous plan, as well as their relevance, must be explained. All salespeople should be given a copy of the new strategy, as well as written examples of how earnings are calculated. If the plan is complicated, specific training sessions are arranged to teach salespeople how to calculate their own revenues.

There are plans in place for follow-up. The necessity for additional adjustments is recognised during periodic check-ups. Periodic checks offer evidence of plan accomplishment and reveal flaws that must be addressed.

9.10 Different Types of Compensation Plans

There are only three fundamental types of compensation plans: salary, commission, and a mix of salary and variable parts.

9.10.1 Straight Salary Plan

This is the most basic compensation scheme. It provides salespeople with fixed sums at regular periods (businesses other than consumer products companies. Firms that formerly used the straight wage plan have transitioned to a blended basic salary with a variable component.

Advantages

1. The sales employees are under control and direction.

2. The job can be adjusted as needed.

3. Salespeople will cooperate more if they are paid a flat pay rather than commissions.

4. It is simple and inexpensive to administer.

5. Increased income stability.

6. Salespeople are spared the task of organising their activities.

Disadvantages

1. Because there is no direct monetary incentive, many salespeople perform merely mediocrely rather than very well.

2. There is a propensity to underpay efficient salespeople while overpaying poor performers.

3. If this persists over an extended period, the turnover rate increases.

4. Salespeople’s morale suffers as a result.

5. Adapting to new conditions is challenging.

9.10.2 Straight Commission Plan

Salespeople are compensated based on their productivity in this case. As sales volume increases to different levels, this system allows for progressive or regressive changes in commission rates. Others specify varying commission rates for the sale of different products, to distinct consumer groups, or during specific seasons.

Straight commission schemes are classified into one of two types:

1. Straight commission, with salespeople covering their expenses. Advances on earned commissions may or may not be made.

2. Straight commission with expenses paid by the company, with or without advances against earned commissions.

Non-selling duties are unimportant in this strategy; rather, getting orders is the major goal.

Advantages

1. It offers the most direct monetary incentives.

2. It allows for cost control.

3. The straight commission plan also has a high degree of flexibility when it comes to modifying commission rates for different products.

Weaknesses

1. Salespeople only set customer orders and are unconcerned about transmitting reports.

2. Salespeople fail to follow up on leads. They are opposed to shrinking sales regions.

3. Salespeople favour the easier-to-sell low-margin items while ignoring the more difficult-to-sell high-margin items.

Determine Commission Base

The selection of the base on which to pay the commission is an important part of designing a straight commission scheme.

1. If achieving volume is the primary goal, total sales should be the starting point.

2. If salespeople collect on sales, compensation is based on collections.

3. If a company has a high number of order cancellations, commissions can be based on shipments, billings, or payments.

4. To keep salespeople from undercutting prices, some organisations base compensation on gross margin.

5. Some businesses focus their operations on net profits, attempting to regulate price cuts, selling expenses, and net profits all at the same time.

Salary Plus Commission

The majority of sales compensation schemes combine a salary and a commission plan. They emerge as attempts to capture the benefits and mitigate the drawbacks of both the wage and commission systems.

In a commission plan, the executive has little control over non-selling activities, although this is not the case in a salary plan.

Advantages

1. Financial motivation and the assurance of a steady income.

2. Management has more power and tools to drive salespeople.

3. Salesmen and the company build a cooperative atmosphere.

Disadvantages

1. Clerical expenses are high.

2. The fixed-variable component split ranges from 60:40 to 80:20.

9.11 Factors Influencing Design of Compensation Scheme

Regardless of the basic structure of compensation, various variables must be considered while establishing a compensation plan for a company.

1. Relation with Product Life Cycle (PLC)

All products go through several stages of introduction, growth, maturity, and decline. This (PLC) level is associated with the selling effort.

When a product is in its early stages, it is tough to sell it. To be able to establish the product in the market, the sales staff must be active, adventurous, and willing to travel. It should have a thorough understanding of the product, excellent communication skills, and a strong desire and endurance to reach the objectives. As a result, during the initial stage, direct salary will be larger and indirect benefits may not be introduced.

a. Growth Stage

The sales force’s motivation must be maintained at this level. Indirect incentive systems must be implemented. Incentives might be connected to meeting quarterly targets. This will aid in the product’s growth.

b. Maturity

When the product has established itself solidly, the sales team requires a break. Indirect benefits include training programmes in environmentally friendly locations, foreign trips, promotions, and a basic wage boost. This broadens their knowledge, motivates them, and points them on a new path in their work.

c. Decline Stage

When a product’s sales begin to decline, further incentives may be offered to encourage renewed interest in the product. Efficient product managers who may be focusing on other goods are given an added incentive to service the dropping product’s sales.

2. Compensation Related with Demographic Characteristics

Different salespeople prefer different remuneration packages based on their demographic factors, such as age and family life cycle. A bachelor may take great chances, is more enterprising, and with high risks come huge rewards. He can only work on a commission or incentive basis. When a man marries, he desires stability with a strong basic component. When you get older, you desire more stability and, ideally, a direct salary.

3. Role of Selling in Marketing Strategy of the Company

This refers to how much weight is placed on sales in the company’s marketing mix and what pattern is being followed.

4. Competitor’s Practices

A great deal is dependent on the market’s competition. Competition might be pure, monopolistic, oligopolistic, or non-existent. As a result, these circumstances are also taken into account, and a compensation plan may be devised to accommodate them.

9.12 Use of Bonus

A bonus is a monetary reward for completing a certain sales task. Bonuses are given for exceeding a sales quota, doing promotional activities, getting new customers, following up on leads, setting up displays, or completing other tasks that have been allocated to you.

Bonuses are never utilised in isolation; they are usually combined with one of the main sales reward techniques. When combined with a straight salary, the plan is similar to the combination plan. When combined with the straight commission plan, the result is a commission plan with an element of managerial control and direction. If utilised in conjunction with the commission-based combination salary.

9.13 Fringe Benefits

Fringe benefits, which have no direct relationship to job performance, often range from 25-40% of the overall sales compensation package. Fringe benefits, such as monetary rewards, do not serve as motivators. Fringe benefits contribute to the satisfaction of safety and security needs in Maslow’s hierarchy, while some (such as payment of country club dues) contribute to the fulfilment of esteem and other higher-order needs.

Individual fringes that appeal more to certain groups than others have been added as the variety of fringes has grown. For example, people with bad teeth are more interested in dental insurance, while those with children are more interested in plans for paying education and tuition fees for dependants. A growing number of businesses use a “cafeteria” approach to fringe benefits.

In this strategy, the employer provides a core set of basic benefits – the benefits mandated by law as well as other standard benefits such as paid vacations, medical, disability, and death benefits, and a retirement plan. Employees then use credits (based on age, pay, family status, and years of company service) to obtain optional benefits that are not included in the core; this allows employees to choose the benefits that best meet their needs. Additionally, due to changing needs, employees are allowed to change their choices. Companies that use the cafeteria also have “awareness programmes” in place to educate employees about the perks provided.

Fringe perks are now a significant component of every salesperson’s salary. These are addressed as follows:

Company Benefits: These account for 25 to 40% of base pay. The value of fringe perks varies by organisation. Company benefits include insurance, paid vacation, paid leaves, retirement programmes, and educational support.

Insurance: Most businesses offer life insurance, health insurance, accident insurance, and disability insurance. The salesman may pay a portion of the insurance premium. Dental and vision care are other popular benefits that many employers offer.

Paid Vacations: These are given to long-serving salespeople who have been with the organisation for a long time.

Paid Leaves: These include sick leave, and maternity leave, and are available to confirmed salespeople who have worked for a significant period.

Pension Plans: Many businesses contribute to pension plans for their employees. A portion of the salesperson’s revenue is also contributed through payroll deductions.

Educational assistance: Many salespeople benefit from company-sponsored educational programmes. They pay for candidates to attend courses that are beneficial to the organisation. Employers also provide employees with time off to attend classes.

Sales Force Benefits: Salespeople receive personal use of a business car as well as participation in clubs/associations. This allows them to connect with a large number of people involved in business, allowing them to increase sales.

Aside from these perks, there may be other types of incentives.

Profit Sharing: A monetary incentive might be offered if the company’s profit increases.

Stock Purchase Plan: Employees can purchase business stock at a reduced price. They have the option of becoming company shareholders. This improves the salespeople’s commitment to the company.

Credit Union: A company-sponsored credit union that allows employees to save and borrow money as needed.

Employee services: Employee services include subsidised meals, recreational facilities, discounts on corporate products, and so on.

Cafeteria Approach: In this approach, employees select the benefits they want. This is a novel technique in which there is a basket of benefits from which the employee chooses ones that are more advantageous to him.