kishore kandalai - 502 module 4 09jun2011

Module 4 : Selecting, Hiring, and Training Successful Salespeople

Running Head: Sales Force Motivation and Compensation

Module 4: Sales Force Motivation and Compensation

Kishore Kandalai

Aspen University


Abstract

The purpose of the abstract is to provide the reader with a brief overview of the overall paper

which in this case is “5” essay questions.

1.Define motivation and explain why it is particularly important for salespeople to possess.

As part of this explanation, explain why persistence is an important dimension of

motivation.

2.Explain the relationship between motivation and each of the sales management

responsibilities listed below

a. Supervising the sales force

b. Setting sales quotas

c. Recruiting and selecting salespeople

d. Designing the expense-payment plan

3.A misalignment between the objectives of a compensation plan and corporate business

objectives is one reason why a compensation plan may be unsuccessful. Propose at least

three more factors that may cause a compensation plan's failure.

4.Assess the difficulties that result from allowing sales employees to determine their own

sales goals or quotas.

a. Recommend a type of compensation plan that may be used to solve each of the

following issues related to managing a sales force. Support your

recommendations with valid research and examples.

b. In an effort to build sales volume, your sales force tends to overemphasize

products with clear-cut benefits. This is resulting in weaker sales for the more

complex and more profitable products.


c. Your salespeople are focusing their efforts on selling to existing clients and not

taking the time to develop new accounts.


Module 1 Deliverables

Assignments: Essay Questions

Essay Question 1

Define motivation and explain why it is particularly important for salespeople to possess. As part

of this explanation, explain why persistence is an important dimension of motivation.

Motivation – The Desire to expend effort to fulfill a need is what we call motivation.

In terms of the sales job, motivation is the effort salesperson want to make to complete various

aspects of their jobs.

Motivation is the process by which a person’s efforts are energized, directed, and sustained

towards attaining a goal. The energy element is a measure of intensity or drive. The effort needs

to be channeled in a direction that benefits the organization. Finally, motivation includes a

persistence dimension in that employees need to persist in putting forth effort to achieve goals.

Motivational effort is generally thought to include three dimensions

Intensity

Persistence and

Choice

Intensity refers to the amount of effort the salesperson expends to a given task

Persistence refers to the how long the salesperson will continue to put forth effort and choice

refers to the salesperson’s choice to specific actions to accomplish job related tasks.

For eg:- A salesperson may decide to focus on a particular customer (Choice) , She may increase

the number of calls (Intensity) until she gets the first order (persistence).

Importance of Persistence:-


The sales job consists of large variety of complex and diverse tasks. Because of this, its is

important that the sales rep’s efforts are channeled in the direction of consistent with the

company’s strategic plan. Therefore, the direction of the salesperson’s effort is as important as

the intensity and persistence of that effort.

You will see that persistence pays, achieving your goal on the long term. If you have confidence

that you can achieve your goal and you have faith, you will be able to handle the challenges that

you will met.

Your confidence will be put to the test. It is the hardest stage of the process of achieving your

goal, but when you persist you may receive a wonderful experience: you have made it, you have

what you wanted. This way your motivation will increase.

When you start something new, you will see that there will be always moments or periods

wherein it seems you don’t go ahead. Then it is important that you have persistence and patience.


Essay Question 2

Explain the relationship between motivation and each of the sales management responsibilities

listed below

a. Supervising the sales force

b. Setting sales quotas

c. Recruiting and selecting salespeople

d. Designing the expense-payment plan

Motivation Process:

The framework comprises six steps. Motivation process (as shown in Figure 1) begins with the

individual’s needs (Step 1). Needs are felt deprivations which the individual experiences at a

given time and act as energizers. These needs may be psychological (e.g., the need for

recognition), physiological (e.g., the need for water, air or food) or social (e.g., the need for

friendship). These deprivations force the individual to search for ways to reduce or eliminate

them (Step 2). Motivation is goal directed (Step 3). A goal is a specific result that the individual

wants to achieve. An employee’s goals are often driving forces and accomplishing those goals

can significantly reduce needs. For example, some employees have strong drives for

advancement and expectations that working hours on visible projects will lead to promotions,

raises and greater influence. Such needs and expectations often create uncomfortable tension

within these individuals. Believing that certain specific behaviors can overcome this tension,

these employees act to reduce it. Employees striving to advance may seek to work on major

problems facing the organization in order to gain visibility and influence with senior managers

(Step 4). Promotions and raises are two of the ways that organizations seek to maintain desirable


behaviors. They are signals (feedback) to employees that their need for advancement and

recognition and their behaviors are appropriate (Step 5). Once the employees have received

either rewards or punishments, they reassess their needs (Step 6).

Nature of Motivation:

Motivation is intangible.

Motivation drives all human action. It is the energy source. Those seeking to shape the

behavior ultimately wrestle with motivation.

With a bit of work, we can intuit our own motivation and monitories shifting nature and

intensity. But we can only observe and measure the motivation of others indirectly.

We have to be motivated to motivate.

Motivation requires a goal.

Motivation, once established, never lasts.

Motivation requires recognition.

Participation motivates

Seeing ourselves progressing motivates us.

Group belonging motivates.

Intrinsic and Extrinsic Motivators:

Intrinsic motivator: This type of motivation involves the achievement of personal goals that are

not related to physical or external needs such as money, car, holiday etc. These are self-generated

internal factors (responsibility, freedom to act, scope to use and develop skills and abilities,

interesting and challenging work, opportunities for advancement) as opposed to the external

factors. They have a deeper and longer-term effect. Intrinsic motivation drives people to do


things just for the fun of it, or because they believe it is a good or right thing to do. Most people's

hobbies are intrinsically motivated. Notice the passion with which people collect little bits of

china or build detailed model ships. Few people carry that passion into their workplace.

Extrinsic Motivators: These are the tangible factors like money, promotion, a bigger office desk,

and more friends as well as tangible factors as praise, thanks, and the esteem of others. Because

they are generated from outside that does not mean that they are less important to the individual.

These have an immediate and powerful effect, but won’t necessarily last long.Supermarkets use

loyalty cards and discounts, airlines use air miles, companies use bonuses and commissions.

You can offer positive motivations such as rewards and other bribery or you can use negative

motivation such as threats and blackmail. Either way, extrinsic motivation is crude, easy and

often effective. However it focuses people on the reward and not the action. Stop giving the

reward and they’ll stop the behavior. This can, in fact, be useful when you want them to stop

doing something: first give them extrinsic rewards for doing the unwanted behavior, then remove

the reward.

There is a paradox of intrinsic and extrinsic motivation. Intrinsic motivation is far stronger a

motivator than extrinsic motivation, yet external motivation can easily act to displace intrinsic

motivation. This occurs when one attributes his behavior more to a conspicuous extrinsic

motivator than to intrinsic reasons. This effect is less when rewards are given for performance

success rather than simply completing tasks, but can still be significant.

Greene, Sternberg and Lepper (1976) played mathematical games with schoolchildren, which the

children seemed to enjoy. After a while, they started giving rewards for success. When they took

away the rewards, the children quickly gave up playing the games. The explanation was that the

children had decided that they were playing for the reward, not for the fun.


A traveler might fly largely with one airline, where he/she does not get particularly good service.

But still they do it only because they have been trapped into collecting their 'air miles'

convertible points and some extra discounts.

Importance Of Motivation:

Probably no concept of HRM receives as much attention of academicians, researchers and

practicing managers as motivation. The increased attention towards motivation is justified by

several reasons.

Motivated employees are always looking for better ways to do a job. This statement can apply to

corporate strategists and to production workers. When people actively seek new ways of doing

things they usually find them. It is the responsibility of the managers to make employees look for

better ways of doing their jobs.

A motivated employee generally is more quality oriented. This is true whether we are talking

about a top manager spending extra time on data gathering and analysis for a report or a clerk

taking extra care when filing important documents. In either case the organisation benefits,

because in and outside the organisation see the enterprise as quality conscious. A clear

understanding of the way motivation works helps the manager make his employees quality

oriented.

Highly motivated workers are more productive than apathetic workers. The high productivity of

Japanese workers and the fact that fewer workers are needed to produce and automobile in Japan

than elsewhere is well known. The high productivity of Japanese workers is attributable to many

reasons, but motivation is the main factor. Productivity of the workers becomes a question of the

management’s ability to motivate its employees.


Every organization requires human resources in addition, to financial and physical resources for

it to function. Three behavioral dimensions of HR are significant to the organizations.

People must be attracted not only, to join the organization but also to remain in it.

People must perform the task for which they are hired, and must do it in a dependable

manner;

People must go beyond this dependable role performance and engage in some form of

creative, spontaneous and innovative behavior at work.

In other words, for an organization to be effective, it must come to grips with the motivational

problems of stimulating both- the decision to participate and the decision to produce at work.

Motivation as a concept represents a highly complex phenomenon that affects, and is affected by

a multitude of factors in organizational milieu. A comprehensive understanding of the way in

which an organization functions, requires that increasing attention be directed towards the

question of why people behave as they do on their jobs. An understanding of the topic of

motivation is thus essential, in order to comprehend more fully the effects of variations in other

reactions (such as leadership style, job realization, and salary systems) as they relate to

performance, satisfaction, and so forth.

Yet another reason why increasing attention is paid towards motivation can be found in the

present and future technology required for production. As technology increases in complexity,

machines tend to become necessary, yet insufficient, vehicles of effective and efficient

operations. Modern technology can no longer be considered synonymous with the term

‘automation’. Consider the example of the highly technology-based space programme in our

country.


The Polar Satellite Launch Vehicle’s (PSLV) has been the result of 12 years of development

work, transfer of technology to the private industry, smoothening the manufacture of components

and subsystems, complex project management, and dedicated work by literally thousands in the

ISRO, industry and other national laboratories and research institutes. With this feat, India has

joined the exclusive club of half a dozen nations that can build and, more importantly, launch its

own satellites. The secret behind the success of ISRO has been its employees who are both

capable of using and are willing to use the advanced technology to reach the goals.

Finally, while organisations have, for some time viewed their financial and physical resources

from a long-term perspective, only recently have they begun seriously to apply this same

perspective to their human resources. Many organisations are now beginning to pay increasing

attention to developing their employees as future resources (a ‘talent bank’) upon which they can

draw as they grow, and develop. Evidence of such a concern can be seen in the recent growth of

management and organisational development programmes, in increased popularity of

‘assessment centre’, appraisals. More concern is being directed in addition. Towards stimulating

employees to enlarge their job skills (through training, job design, job rotation, and so on), at

both blue collar and white-collar levels in an effort to ensure a continual reservoir of well trained

and highly motivated people.

Theories Of Motivation:

Understanding what motivated employees and how they were motivated was the focus of many

researchers following the publication of the Hawthorne Study results (Terpstra, 1979).

Motivation theories have continued to evolve and have their roots in behavioral psychology.

They provide a way to examine and understand human behavior in a variety of situations. No

one theory is appropriate for all people and for all situations. Each individual has his or her own


values and differing abilities. In business settings, managers apply motivation theories to

influence employees, improve morale, and implement incentive and compensation plans.

All the theories can be classified into two broad categories – early theories and contemporary

theories. Early theories include Scientific Management, and Human Relations Model.

Contemporary theories are further classified into (i) content (ii) process (iii) reinforcement

categories. Content theories include Maslow’s need hierarchy theory, Herzberg’s two-factor

theory, Alderfer's ERG and Achievement Motivation theory. Process theories include Vroom's

Expectancy Model, Adam's Equity theory and Porter's Performance and Satisfaction model .

Hierarchy of Needs:

Abraham Harold Maslow, a professor at Brandeis University and a practicing psychologist,

developed the Hierarchy Of Needs Theory. The essence of the theory may be summarized thus:

1.Human beings have wants and desires, which can influence their behavior. Only unsatisfied

needs can influence behavior, satisfied need do not act as motivators.

2.Since needs are many, they are arranged in the order of their importance, or hierarchy (hence

the nomenclature need-hierarchy theory of motivation), from the basic to the complex.

3.The person advances to the next level of hierarchy, or from the basic to the complex, only

when the lower-level need is, at least, minimally satisfied.

4.Further up the hierarchy the person is able to go, the more individuality, humaneness, and

psychological health he or she will display.

Maslow also suggested that people could travel down as well as up the hierarchy. Loss of

existing satisfaction of primary needs for example, can re-activate that level and increase its

relative importance. A detailed description of each level of needs follows.


The five levels of needs are the following (see Figure 2):

Physiological: The most basic, powerful, and obvious of all human needs is the need for physical

survival. These are basic physical comfort or bodily needs: food, sex, drink, and sleep. These

physiological drives are directly concerned with the biological maintenance of the organism and

must be gratified at some minimum level, before the individual is motivated by higher-order

needs.

In the organizational context, physiological needs are represented by employees' concern for

salary and basic working conditions. It is the duty of HR managers to ensure that these needs of

the employees are met so that they can be motivated to strive for gratification of higher-order

needs.

To satisfy this physiological need AT&T gave money to childcare center and got the priorities

for its workers.23

Security/safety: Once physiological needs are met, another set of motives, called safety or

security needs, become motivators. The primary motivating force here is to ensure a reasonable

degree of continuity, order, structure, and predictability in one's environment. Maslow suggested

that the safety needs are most readily observed in infants and young children because of their

relative helplessness and dependence on adults. Security needs in the organizational context

correlate to such factors as job security, salary increases, safe working conditions, unionization,

and lobbying for protective legislation. Managerial practices to satisfy the safety needs of

employees include pension schemes, group insurance, provident fund gratuity, safe working

conditions, grievance procedure, system of seniority to govern lay-off and, others. Arbitrary or


unpredictable actions, actions that create feelings of uncertainty (particularly regarding continued

employment), favoritism, or discrimination on the part of superiors, hardly create a feeling of

security in an employee's mind.

IBM, Honeywell, Advanced Micro all wrote no lay off policies. Xerox dealt with union to give

job security but reduction n salary.

Belongingness and love: The belonging and love needs constitute the third level in the hierarchy

of needs. These needs arise when physiological and safety needs are satisfied. An individual

motivated on this level longs for affectionate relationship with others, namely, for a place in his

or her family and/or reference groups. Group membership becomes a dominant goal for the

individual. Accordingly, the person will keenly feel the pangs of loneliness, social ostracism, and

rejection, especially when induced by the absence of friends, relatives, a spouse or children.

In the organizational context, social needs represent the need for a compatible work group, peer

acceptance, professional friendship, and friendly supervision. Managers do well to encourage

informal groups. Besides, supervision requires being effective, and friendly behavior with

subordinates pays.

Esteem: Next in Maslow's hierarchy are esteem or egoistic needs. Maslow classified these needs

into two subsidiary sets—self-respect and esteem from others. The former includes such things

as desire for competence, confidence, personal strength, adequacy, achievement, independence,

and freedom. An individual needs to know that he or she is competent and capable of mastering

tasks and challenges in life. Esteem from others includes prestige, recognition, acceptance,

attention, status, reputation, and appreciation. In this case, individuals need to be appreciated for

what they can do, that is, they must experience feelings of worth because their competence is

recognized and valued by others. Maslow emphasized that the most healthy self-esteem is based


on respect earned from others rather than on fame, status, or adulation. Esteem is the result of

effort—it is earned.

United Electric Controls uses valued employee program wherein they receive dollars for

implemented ideas.

Self-actualization: Finally, if all the earlier four level needs are satisfied, the need for self-

actualization comes to the fore. Maslow characterized self-actualization, as the desire to become

everything that one is capable of becoming. The person who has achieved this highest level

presses towards the full use and exploitation of his or her talents, capacities, and potentialities. It

appears to remain important and insatiable. The more apparent satisfaction of it a person obtains,

the more important the need for more seems to become. Maslow, estimated that less than one per

cent of the population fulfils the need for self-actualization. Maslow puts forth three reasons for

this:

First, people are invariably blind to their own potentialities.

Second, the social environment often stifles development towards self-fulfillment.

Women, for example, were stereotyped for long as housewives. This prevented them

from reaching self-fulfillment.

A final obstacle is the strong negative influence exerted by the safety needs. The growth

process demands a constant willingness to take risks, to make mistakes and learn from

them, and to give up old habits. This requires courage. It logically follows that anything

that increases the individual's fear and anxiety also increases his or her tendency to

regress towards safety and security.


In an organization, self-actualization needs correlates with the desire for excelling in one's job,

advancing an important idea, successfully managing a unit, and the like. By being aware of the

self-actualization needs of subordinates, managers can use a variety of approaches to enable

them to achieve personal as well as organizational goals.

It must be noted that the first three needs, i.e. physiological, safety and social needs are related to

the job context. Where as self esteem needs and self actualization needs are related to the job

content.

Evaluation Of Maslow’s Theory:

Maslow's need hierarchy theory has been highly appreciated. The theory deserves appreciation

for its simplicity, commonness, humaneness, and intuitiveness. It is said that the theory offers

some useful ideas for helping managers think about motivating their employees.

Firstly, the managers are more likely to identify employee needs, recognize that the needs

may be different for each employee, offer satisfaction for the particular needs, and realize

that giving more of the same reward may have a diminishing impact on motivation.

The second merit of the theory is that it accounts for interpersonal variations in human

behavior. This may be because they belong to varying levels of Maslow's needs

hierarchy.

Third, the need hierarchy model is dynamic in that it presents motivation as a constantly

changing force, expressing itself through the constant striving for fulfillment of new and

higher levels of needs.

Fourth, Maslow's approach to human behavior makes a total departure from earlier

approaches. Called humanistic psychology, Maslow's approach is based on existential


philosophy. One of the basic tenets of existential philosophy is that a man is a healthy,

good and creative being, capable of working out his own destiny. One may not subscribe

to the existential philosophy, but Maslow deserves to be complimented because of his

departure from the Freudian philosophy, which focused on sex, and Skinner who sought

to extend observations derived from animal research to human behavior.

Essay Question 3

A misalignment between the objectives of a compensation plan and corporate business

objectives is one reason why a compensation plan may be unsuccessful. Propose at least

three more factors that may cause a compensation plan's failure.

Today's compensation approaches, like the rest of the business world, are changing rapidly. As a

result, the bridge that connects compensation strategy to the overall business strategy may have

been weakened by the frequent shifts that characterize business today. Consider the following

scenario: Seeing its competitors and peer companies implementing skill-based pay, one company

decided to implement a similar system in its own operations-without giving sufficient thought to

how the change will help or hinder the company's ability to execute its business strategy. Or

consider the opposite scenario: A company reformulates its business strategy without making the

necessary changes to its compensation systems. Situations like these are not unique. The pace of

change in both business strategy and compensation design are leading many companies to

consider and implement changes to one side of the bridge without making changes to align it

with the other side of the bridge. As a result, the bridge becomes weaker and is more likely to

undermine the overall success of the business.


This article will discuss how companies can periodically examine the alignment of the bridge

between business strategy and compensation strategy and then make the necessary changes to

address any weaknesses in that alignment. This process encompasses the following key steps:

Articulating the company's long- and short-term business strategies and making sure they

are aligned with current compensation approaches.

Choosing the compensation approach that will best reward and reinforce the company's

articulated strategic goals.

Periodically evaluating the compensation approach against the business strategy to see if

goals have been met and make necessary adjustments.

Articulate the business strategy

To align compensation with the business strategy, a company must first be able to articulate what

that business strategy is. After all, in the continuum of the strategic planning process,

compensation systems design comes at the end. See Exhibit 1. The reason is this: compensation

systems must be designed last to ensure that they are rewarding the types of performance and

behaviors that will ultimately allow the company to realize its strategy.

Exhibit 1.

The Strategic Planning Process

Step 1. Using the results to a situation analysis (which identifies the strengths and weaknesses of

the company's business processes, organizational behavior, and other systems), as well as the

company's mission and philosophy statements, develop a corporate strategy.


Step 2. Using an approach similar to that in Step 1, begin to operationalize the corporate strategy

by developing a business strategy plan for business units and departments.

Step 3. Establish job accountabilities and individual assignments so that each employee knows

what to do to support the strategy.

Step 4. Develop supporting reward systems.

Step 5. Monitor and measure progress against the articulated strategy and goals.

While identifying and articulating the business strategy seems self evident, many companies

have lost sight of their strategy or find that a strategy is in place but not explicitly recognized or

communicated. And in this era of constant change, companies can't assume that they are

pursuing their official business strategy. In other words, a company whose business strategy is

obsolete may have adopted a more relevant strategy without taking the time to explicitly

articulate that strategy.

The business strategy should include specific financial and non-financial objectives for the

company over three to five years that, in turn, can be translated into short-, intermediate-, and

long-term initiatives necessary to help execute that strategy. Financial goals like increasing profit

margin and net income can be translated into objectives that are relevant to people lower in the

organization but still help achieve those higher level goals. For example, manufacturing teams

have, at best, indirect influence on the company's overall profit margin. Therefore, these teams

would instead be measured against goals, like operating and maintenance cost management and

the results of customer satisfaction surveys that contribute to the company's profit margin.


Because the goal of a compensation strategy is to deliver the right amount of pay necessary to

motivate the types of performance necessary to achieve the business strategy, it is much more

difficult to identify and design appropriate reward programs without an articulated business

strategy. In fact, in the absence of an articulated strategy, compensation professionals must often

gather the planning information necessary to develop reward systems themselves. In these cases,

compensation professionals should find out where the organization is headed, the goals and

objectives for each level in the organization, and what behaviors are to be reinforced through the

rewards system.

One manufacturer planned to shift from simply providing machinery, which has a long sales

cycle, to providing more in-depth technical knowledge and customer support that required more

consultative selling skills. This strategic shift to a service center required the current staff to

refocus on the new direction and to become more sensitive to customer service. At the same

time, altering the direction of the company also required a new hiring approach that would bring

in the types of people necessary for the company to achieve its overall goal of moving up from

ninth place in the industry to third place within five years.

To accomplish this strategic shift, the company's human resources and compensation

professionals needed certain critical information:

Could the company re-educate the affected employees in time to have the desired results

within the immediate and intermediate time frames?

How many new people needed to be hired?

What are the desired background and experience required to do the job?


Were the new roles clearly defined and articulated to the employees and the customers?

How many of the new roles required team work versus individual contribution?

How will the company know when it is attaining its goals?

And will cash be the only or the primary means of recognizing the attainment of

individual and company goals?

Without answers to these questions, the company's HR and compensation professionals would be

unable to develop the people systems, particularly compensation systems that would support the

achievement of the company's strategic goals.

Choose the right compensation approach

Once compensation professionals have a strong grasp of the business strategy and its associated

goals and objectives, the next step in this process is to design reward systems that will support

and reinforce that strategy, goals, and objectives. This is where companies seem to be swayed

away from choosing the most appropriate compensation approach in favor of the most popular or

trendy compensation approach. Does it make sense to change the compensation system to a

broad banded approach, to use team incentives, or to link financial goals to external measures?

Each one of these plan design features have a great following in the business press, but do they

make sense for the individual company?

On the one hand, a precision manufacturer of optics or a specialty tool company may need to

move slowly before changing the specifications of jobs to fit one of these compensation

approaches because of the specialized nature of the jobs. On the other hand, it may be easier for a

manufacturer of heat transfer equipment to modify pay without potentially affecting quality. In


either case, the job structure must meet the needs of the current and constantly evolving nature of

the company's product and services cycle. And the compensation system must support the

achievement of the company's strategic objectives.

The need for care in changing compensation approaches became clear to one company that used

earnings per share as the primary financial measure of performance in both the short- and long-

term incentive plans. Although this measure was easy to communicate to both internal and

external audiences, existing accounting procedures made it difficult to maintain enthusiasm

among individuals working in business units with operating problems. Only after each business

unit had its own operating performance indicators under the short-term incentive plan was the

company able to rejuvenate itself.

As this company's experience suggests, choosing the right compensation approach is a matter of

determining what a given employee or group of employees can control and what impact their

performance has on overall company success. By determining what an individual or group can

control, the compensation professional has a list of potential goals and objectives to be rewarded.

And by determining what impact an individual or group has on company performance, the level

of reward can be established.

In one financial product company, management shifted its strategic focus from growing

primarily by adding new customers to a strategy focused on product penetration of existing

clients and geographic areas. This shift required a change from cold selling to improved account

management and product enhancement. This, in turn, required the management and marketing

staff to listen more closely and respond more carefully to their existing customer bases. The

company did not neglect the cold call selling but now balanced it with this new overall strategy.


As a result of this shift, recruiting emphasized customer servicing skills and the organization

emphasized team work and coordination. There was also a shift in pay practices from rewarding

only new dollar sales to a balance of rewards for retention sales, account management, service

quality, and new sales both inside and outside of the current customer base.

The process of aligning business and compensation strategy also requires determining what level

of pay should be at risk. With various forms of incentives making their way to the lowest levels

of many organizations, simply limiting pay at risk to the highest levels of the organization may

no longer be an option. For example, the now-deregulated utility industry is facing increased

competition and a struggle to increase margins to sustain competitive rates of shareholder

returns. To generate those returns, many of these companies are extending variable pay practices

deep in the organization as a means to focus employee attention on operating margins, return on

investment, cash flow, and customer service. One such company went a step further by holding

base salaries at the competitive market level, using lump sum merit increases for salaries above

the competitive level, and making all employees eligible for variable pay. The variable pay was

conditioned on achieving a certain level of shareholder returns before any incentive payouts

would be made. In other words, only after the shareholder was taken care of would each business

unit receive incentive monies to reward individuals for achieving corporate and business unit

goals. As a result of this approach, communications about what is important to the organization's

success have improved and people are speaking the same language of success.

Part of this process also includes taking stock of existing compensation programs to see how

they reward employees and what kinds of performance and behaviors they reward. After all, just

because the company's strategy may change does not mean that existing reward programs must


change wholesale. Rather, reward programs often simply need refurbishing to accommodate the

new goals objectives and direction of the company. For example, one company in the apparel

industry simply had to tweak its reward programs by paying more attention to the

communication program. The company already had variable pay and what it considered reliable

measurements. But the employees who were supposed to be enjoying the fruits of their labor did

not have a clear understanding of how it all made sense. Therefore, the company embarked on a

revised and sustained communication program aimed at all employees.

Periodically review the linkage

By periodically reviewing the linkage between the business strategy and the compensation

approach, companies can ensure that the two are still in alignment. This also allows companies to

judge the effectiveness of the compensation approach. In other words, if the company is closer to

its strategic objectives than it was at the beginning of the strategic planning process, the strategy

and compensation approaches are most likely aligned and working synergistically. On the other

hand, if it has not seen expected results or moved forward as quickly as expected, the company

should undertake more analysis and a more thorough strategic planning process.

If compensation is indeed the reason why the company has not achieved its strategic objectives,

two common pitfalls may be at the root of the problem. The first pitfall, the Moving Target

Syndrome may be difficult to discern because these companies often appear to have everything

in sync with processes in place for planning and goal setting. However, a closer look reveals that

managers frequently change goals, targets, and objectives throughout the performance period,

causing employees to change direction constantly. Companies that undergo frequent

reorganizations are particularly at risk for the Moving Target Syndrome.


The Moving Target Syndrome also manifests itself in other ways. Managers change performance

target just as employees are about to achieve them, often with the rationale that the targets were

set too low or were not realistic. Or managers lower targets if the original targets will not be

reached. But however it plays out, the Moving Target Syndrome can be devastating to a

company's efforts because employees become confused and frustrated without clear and steadfast

performance objectives to guide them. The second common pitfall is making accelerate

payments for long-term performance before that performance has actually been realized. For

example, under management incentive plans with three- to five-year time periods for goals, some

companies will make incremental payments under the plan to reward them for projected future

performance. Unfortunately, past performance doesn't guarantee future performance will be at

the same level so companies can get burned if performance drops and payouts against that

performance have already been paid. Accelerated payments also reward and reinforce short-term

thinking among these managers.

At the same time, however, companies should resist the impulse to make compensation the

scapegoat for unsatisfying results. After all, compensation is but one portion of the strategic

planning and implementation process. It solves nothing to change compensation when the overall

strategy or some other organization system is flawed. For example, a bank holding company

wanted to install a short-term incentive plan for all management and increase the level of long-

term incentives for senior management. The reason for the change? Because other companies

were doing it and pressure was building to stay competitive. Moreover, the operating analysis

seemed to indicate future operating performance might support such action. However, a

retrospective and more detailed analysis of performance indicated a different level of company


performance that would not support the projected baseline for future performance. Therefore, the

challenge became for the company to fix itself before attempting to move ahead by restructuring

and hiring key executives to bring the company up to the level it thought had already achieved.

For the short term, the company chose not to establish a new compensation plan but planned to

rely on the current plan with more hands on management by the executive team.

Conclusion

Compensation remains an important tool for helping a company achieve its strategic objectives.

However, companies must recognize that compensation does not operate in a vacuum. It is

merely one step in a very dynamic strategic planning and implementation process. But by

ensuring that compensation is aligned with their strategic objectives, companies stand a better

chance of achieving those objectives and maintaining a competitive edge over their competitors .


Essay Question 4

Assess the difficulties that result from allowing sales employees to determine their own sales

goals or quotas.

a. Recommend a type of compensation plan that may be used to solve each of the

following issues related to managing a sales force. Support your

recommendations with valid research and examples.

b. In an effort to build sales volume, your sales force tends to overemphasize

products with clear-cut benefits. This is resulting in weaker sales for the more

complex and more profitable products.

Sales goals and quotas help your business define its performance expectations and tells your staff

what is expected of them within given time periods. A goal is the number of sales you want to

reach. Set this number higher than historical sales to encourage growth. Sales quotas are your

expectations for individual salespeople and the staff as a whole. Be sure your staff knows that

they must exceed their quotas and will be rewarded for reaching their goals.

Establish parameters for developing quotas

The start of the quota-setting process is to look at history to determine what sales success your

team has had in the past or what sales success your team is likely to have in the future. Common

parameters that can be used to define quotas include:

Historical trends: How much of which product lines have been sold in your various sales

territories over time?

http://www.ehow.com/how_7722540_set-sales-goals-quotes.html

http://www.ehow.com/business/

http://www.ehow.com/how_7722540_set-sales-goals-quotes.html


Last year's revenue: What was the total revenue from all products and sales territories?

National standards: How much did all vendors (selling the same types of products) sell?

Territory analysis: How much does each salesperson think can be sold in his or her

territory based on the existing pipeline and recent successes?

The best quota-setting practices include looking at several of these parameters. For example, you

might look at historical trends while your staff members go through their own records for a

detailed territory analysis.

2. Add a growth expectation

Step one helped you understand history. Now you have to take the next step to predict revenues

for the next year (and then convert that revenue into quotas for your sales team). Each company

has its own method for determining how much growth in revenue should be achieved. That

expectation should be:

Realistic: What is doable for your products in the current state of your market? Some

industries can realistically expect sales growth of 5% while others may see 100%.

Challenging: The goals you set should require each member of your team to work hard to

meet the assigned goals.

3. Adapt the quotas to each sales rep

Adding the figures from steps one and two, you have the total revenue expected from your sales

force. You could now be tempted to divide this total revenue by the number of salespeople to


define the quota for each person. But in fact, not all salespeople are created equal. And not all

sales territories are created equal.

Instead, look at each salesperson individually before determining the appropriate quota to assign.

Some factors you need to consider are:

Tenure: Sales reps who have been with your company for several years have well-

developed pipelines and contacts within their territories. They are more likely to sell

more than those who have just joined your sales team.

Assigned job: If you have different types of salespeople within your team, you may need

to adjust quotas based on the type of job. The potential for sales of telemarketing people

may be different from that of outside salespeople.

Sales skills: Face it -- some members of your team just have better sales skills than

others. Having better sales skills is more likely to result in higher sales results.

Market potential: Each territory may be different in its needs and appetite for acquiring

each of your products.

Competition. In some territories, the competition may be strong and thereby reduce the

potential for sales. In other territories, competition may be weak or non-existent.

Using these factors (and others that might be unique to your company), assess your expectations

for each of your sales reps. Then use those expectations to determine the right quota for each

person.


4. Get buy-in from your sales team

If quotas are imposed on your salespeople without an explanation of how they were defined, the

result could be resistance. It's important to have your staff buy in to your process for setting

quotas, believe that these goals are achievable and work toward meeting or exceeding their

assigned quotas.

To increase the buy-in of your sales staff to your quota-setting process:

Start with a planning meeting. In one of your sales meetings, outline the process you'll be

using to set quotas. Describe each of the steps you will be taking and the likely

completion date. Most importantly, explain how your team will be involved in this

process.

Have your reps help gather information for the quota-setting process. Let your

salespeople gather the information about their individual territories that you will use as

one of the parameters for setting your quotas.

Meet with each person to determine an individual quota. In the meeting, discuss any

factors that might influence the setting of that person's quota. Make it a joint decision, if

possible, to assign a specific quota.

5. Adapt quotas to market realities

No matter how careful we are in our plans to set revenue targets or break these targets into

quotas, we cannot predict what will happen in the economy. Changes in market conditions are

inevitable. That means that quotas may have to be changed accordingly. Set a timetable for


yourself to periodically review and assess your team's quotas. That way, you can make any

necessary adjustments.

A topic of particular interest in sales management is motivation. Motivation is quite possibly the

most important aspect of sales management. If a sales force is properly screened, selected and

trained, and the product is right, then motivation becomes critical for success. There are many

reasons why motivating a sales force is an important part of the sales process. First, salespeople

must cope with acceptance and rejection on a continual basis. They go from being exhilarated as

the result of a big sale to the disappointment that results from being turned down. Often,

salespeople will spend many hours on the road, away from their families, which may affect their

overall morale. This, paired with the fact that salespeople usually operate without managerial

supervision, indicates that these individuals require a high level of self motivation in order to

consistently produce good results. And finally, motivation directly influences the level of

enthusiasm a salesperson has in presenting the product or service to the customer. If a sales

representative is passionate and enthusiastic about a product or service, it can directly influence

the customer's decision to purchase, as well as building strong relationships for future purchases.

With that said, it is important to note that sales managers are responsible for instilling and

maintaining an effective level of motivation in their staff. In addition to providing strong

leadership, a sales manager must motivate a sales force in order to achieve pre-determined sales

goals.

Managers can use a variety of tools to successfully motivate their sales force. The most powerful

motivator is a well-designed compensation package. Sales managers can effectively motivate


salespeople by designing a compensation formula that is a good balance of salary, bonuses, and

commissions. Managers define selling objectives in the form of quotas, established

compensation levels, and an effective incentive portion. There are a variety of formulas for

compensating salespeople; the formula depends on linking the firm's overall performance

expectations to each salesperson.

Straight commission is used by sales managers to reward salespeople for their accomplishments,

rather than their time or efforts. Straight commission compensation fosters independence for the

salesperson. It is a strong motivator in that payout only occurs if a sale is made, resulting in

lower costs for the company. It is favorable program for organizations that want to minimize

compensation costs; especially for new and growing companies. There are some disadvantages

of straight commission, which include the inability of sales managers to control selling activities,

as well as high employee turnover.

Another compensation program frequently used by organizations is salary plus bonus.

Essentially, the salary plus bonus formula includes base salary with a performance-based bonus

paid when sales goals and quotas are achieved. Sales reps may also be evaluated on factors,

including creation of new accounts, average gross margin, and after sales servicing. Unlike

straight commission, this program helps to reduce the rate of employee turnover. The plan also

encourages salespeople to build long-term relationships with their customers. By having the

security of a consistent income, salespeople can be patient with their customers and allow them

to take the time needed to make an informed decision. This is particularly important when

buying cycles are long and when sales representatives need time to get acclimated with the

buying cycle of the customer.


When selling complex products or services, a salary plus commission structure may be used to

compensate the sales force. Under this program, a salesperson is guaranteed a base salary and is

awarded a commission based on factors determined by the organization. Typically, a salary plus

commission program is structured around upper and lower thresholds related to sales volume.

For example, a salesperson may earn 4 percent on the first $20,000 of sales volume each month,

5 percent on an additional $15,000 and 6 percent on sales over $40,000. Other firms may use

different criteria, such as reaching sales quotas on the number of individual products sold in each

product category. The advantages to this method are related to the flexibility of program. Firms

are able to customize the program to meet corporate objectives as they relate to the sales force.

Commissions can be spread out over a given period to ensure reps will continue to offer the

customer a high level of service, and to discourage the reps from leaving the company after a big

sale.

Salary plus commission and a bonus is a combination of the aforementioned programs. This plan

combines the stability of a salary, the incentive of a commission, as well as special bonus

awards. Every activity of a salesperson is financially recognized by this program and is favored

by salespeople because of the earning potential of the plan. The plan is not as popular as the

others because of the complexity involved to administer the program.

Short-term incentive programs are often used by firms to motivate salespeople beyond standard

compensation packages. Sales contests are the most common incentive used to generate

excitement about selling products and services. The contests usually run for a limited time and

include cash prizes or travel to those salespeople who achieve a certain level of sales. Timing of


the contests is crucial. Typically, contests should be rolled out during the slower seasons of a

given industry in order to boost sales and to generate incremental revenue.

Essay Question 5

Imagine you are the hiring manager for a large company that has an immediate need for

additional sales representatives. You have narrowed your selection from the pool of applicants

down to one of the following candidates.

a. Candidate Y had a highly-successful interview, but did not perform very well on

psychological evaluations used to identify personal characteristics the company

thinks are necessary for success.

b. Candidate Z performed well on the psychological tests, but did not experience a

successful personal interview.

Determine which candidate you would hire and give details about the rationale behind your

decision.

I would consider candidate Z for hiring, for the following reasons/

Successful Psychological evaluations means

i) Ability to manage stress

ii) Impulse Control

iii) Assertiveness

iv) Courage

v) Professional Image and interpersonal Style

vi) Solid problem-solving skills and good judgement

vii) Ability to make decisions and to maintain composure in crisis

viii) Honesty and Integrity


ix) Loyalty, dedication, commitment

x) Ability to derive satisfaction through job

xi) Willigness to follow direction and to adhere to the organizational chain of command

xii) Ability to know when to take lead, And when to step back

References:-

http://ezinearticles.com/?How-To-Change-Your-Personal-Behavior-to-Succeed-In-Life,-School,-

And-Business&id=5693088

wps.prenhall.com/wps/media/objects/3597/.../Ch16_Summary.doc

http://www.dimensionsofmotivation.com/171/persistence-pays/

http://www.dgm.com/information-center/articles/reinforcing-the-bridge-between-business-

strategy-and-compensation-strategy/

http://www.ehow.com/how_7722540_set-sales-goals-quotes.html#ixzz1OzJlicdl

Sales Management - strategy, organization, levels, advantages, manager, type, company,

disadvantages http://www.referenceforbusiness.com/management/Pr-Sa/Sales-

Management.html#ixzz1OzMQlQDa

http://www.referenceforbusiness.com/management/Pr-Sa/Sales-Management.html

http://www.salesmba.com/articles1/masm02.htm

http://www.referenceforbusiness.com/management/Pr-Sa/Sales-Management.html

http://www.referenceforbusiness.com/management/Pr-Sa/Sales-Management.html#ixzz1OzMQlQDa

http://www.referenceforbusiness.com/management/Pr-Sa/Sales-Management.html#ixzz1OzMQlQDa

kishore kandalai - 502 module 4 09jun2011

Documents