Module5lesson1.docx

The Pros and Cons of Compensation Programs for Sales

Motivation is an important aspect for any manager in an organization. One of the priorities for any manager is to keep productivity high and that is often directly correlated to how the employees perceive their worth in an organization. One of the most rudimentary ways for an employee to define their worth is through their compensation.

Compensation can take many forms; the most basic form is money. The sales professional, in this case, is rewarded directly with money for their efforts. However, before we discuss financial compensation, we need to briefly address motivators. There are two types of motivators: extrinsic and intrinsic. Extrinsic motivators are often referred to as “if-then” scenarios. If you reach this sales objective, then you will get a new watch. Intrinsic motivators are more emotional than extrinsic; they include challenge, satisfaction and responsibility, among other factors. An example of an intrinsic motivator would be receiving the offer to lead a focus group for a new product launch. What motivates one person a certain time may not motivate them all the time, and each individual has different ideas of what motivates. Some people strictly want financial rewards, while others seek genuine praise in the office, while others yet desire time off that can be spent with family.

The countless types of motivation makes the sales management team’s job of creating desirable compensation programs to whole groups a challenge within itself. There are some steps that can be taken to increase the likelihood of creating a successful compensation program.

Don’t solely focus on outcomes.

· While compensating a salesperson for their outcomes seems logical and right, it does have some limitations. Research has shown that the value of meeting a sales objective and receiving a bonus is short-lived and can be demotivating over time. You reach a sales goal and then the next sales goal is bigger; that one is achieved, then another larger goal is set. Additionally, many organizations create “caps” on compensation. In multiple research studies, this approach has shown to decrease effort.

Keep it simple.

· In efforts to try and meet multiple objectives and ideals established through various motivation theories, as well as tailor to the different salesperson types, compensation programs can become very complex. In an effort to not just focus on sales outcomes, organizations create compensation programs that have formulas that are nearly impossible to assess ahead of time. Keeping the program simple allows participants the ability to understand how to reach their objective.
· That said, modern research encourages a compensation plan that has more than one component to keep as many salespeople motivated throughout the compensation cycle.

Balance risk versus reward.

· Some sales efforts are riskier than others. Selling an established beer product line to an area rich with bars and pubs is not very risky; that may be a situation many sales professionals seek. These sales professionals are comfortable with a higher-than-normal portion of their compensation being tied to the sales generated. Selling to the world health and beauty product line may be a much higher risk as consumers tend to be very committed to their brands. A new brand or product may take years to establish trial or brand equity. In this scenario, offering a higher base salary may attract higher quality candidates.

Understand the timing factor.

· Since it is unrealistic and risky to create completely customized compensation programs for each salesperson on your team, you can create a sales program that is on a cycle that appeals to multiple types of sales professionals. While a traditional compensation plan may state that the sales goals are evaluated in one specific increment of time (for example, quarterly or annually), there is research to support multi-increment evaluation. In this scenario, sales may be evaluated quarterly and then a cumulative assessment can be made once a year. This plan aids in keeping the sales staff motivated during slow periods and still allows them to focus on long-term efforts.

Summary

These are just four ways to help a sales manager focus on compensation plans. With each decision made, there are always pros and cons, which are different for each organization and each specific team of sales professionals. The four topics above can be a great starting point for a group preparing new compensation programs to have a dialogue about sales motivation.