Are Salespeople only motivated by money?

Are Salespeople only motivated by money?

Introduction of Salespeople Compensation

Motivation of sales force is widely recognized as a crucial component of the organisation strategy to gain competitive advantage (Pullins 2001, 403-413). Motivated salespeople are always more productive and creative. Furthermore, motivation relates to job satisfaction, commitment, and even intention to remain in the organization. Therefore, motivations to perform better only exist when there is a satisfaction of the rewards given by the organisation (Stockes, Riger and Sullivan 1995, 533-549). 

Money is considered as the most significant rewards to employees. Bhatti and Shahzad (2008, 143-52) conducted a study to examine the relationship between compensation plans and employee motivation. The study showed a positive relationship between compensation and motivation of salespeople. While money may be key driver for most sales people, it is definitely not the only one. According to the assessment system study (see Appendix 1), it shows that there are many ways to motivate salespeople and money is just one of those ways (Wolfe 2011).

The responsibility of the sales-manager is to decide how the salespeople should be compensated. While there are a variety of ways employees can be rewarded, in general, sales-manager uses three main methods to financially compensate salesperson: straight salary, straight commission, and combination compensation plans (Pinkham and Triplett 1998, 20-28).

Straight salary

It is a method in which only a fixed salary (but no commission) is paid to salesperson. The amount received by a salesperson is a function of time worked and not of performance as reflected in sales volume (Moynahan 1986, 76). This method is used where the firm is aiming at long-term presence in the market instead of short-term sales volume, or the firm is aiming at thorough familiarisation of a new geographic area (O Connell and Hankin 1994, 123).

Straight commission

It is a direct monetary rewards paid for performing certain duties over a period of time. It is related to a unit of time rather than to work accomplished (Nelson 1985, 19). The amount received by a salesperson is a function of his or her performance (and not of actual time worked) reflected in sales volume. This method is used where the objective is to  generate maximum short-term sales revenue at the lowest overhead cost or to employ independent sales-representatives instead of permanent salespeople(Layne 1990,1).

Combination compensation plan

It is combination sales commission plans offer both a base salary plus an incentive based on production (Zobal 1998, 235). This compensation mix should be skewed more toward salary when salesperson have less control over their own performance, much relationship selling is involved or team selling is used. When the organisation’s sales approach is focused on short-term incentive pay, then a higher percentage of incentives pay should be offered in the compensation mix (Mudambi 2002, 489).

Overall, compensation plans vary greatly, with the combination patterns being the most common. Regardless of the plan chosen, the sales-manager will attempt to choose one, which motivates the salespeople to maximum performance, and simultaneously one that is economical to administer.

The advantages and disadvantages of each type of compensation are provided in table below.

Compensation structure	Advantages	Disadvantages
Straight salary	·         Provides a steady, known income level ·         Easy for firm to manage and administer ·         Provides more managerial control over non-selling activities	·         Not tie to financial incentives or merit ·         May reduce a salesperson’s motivation ·         May not attract top salespeople to the firm
Straight commission	·         Salesperson’s income is directly linked to sales results ·         Financial incentives to increase sales volume and profitability ·         Compensation costs vary with sale	·         Firm has less control over non-selling activities ·         Difficult to build loyalty to the firm ·         Income level is unsteady
Combination compensation	·         Provide constant salary ·         Financial incentive to increase sales volume and profitability ·         Provides reward for performing non-selling activities	·         More complex for the firm to administer ·         May be difficult to set the most effective salary’s commission levels.

Frank, Rumbauskas. November 17, 2010. Salary or Salary + Commission. 

http://www.eyesonsales.com/content/article/salary_or_salary_commission/ (accessed August 15, 2011).

Motivation is the encouragement to something: this is a result of our individual needs being satisfied (or met) so that people have inspiration to complete the task (Wang and Netemeyer 2002, 217). There are three main theories which discuss motivational needs for salespeople and how as a manager can address them in the work place: The first is Maslow’s need hierarchy which then lead to McGregor’s Theory X and Theory Y and  Herzberg’s Motivation Hygiene Theory. 

Maslow hierarchy of needs

Maslow argued that employees have five levels of needs: physiological, safety, belonging and love, esteem, and self-actualizing and that the lower needs must be fulfilled before moving upward to the next need. It is only unsatisfied needs which can influence behaviour, not the satisfied needs (Anil 2009, 237).

In Maslow’s Hierarchy, money would be recognized within the safety category. When salespeople have money, they feel secure because they have a resource they need to survive. According to Maslow once that need is fulfilled, salespeople will move to the next level for motivation. In this case, money itself is no longer a motivator because that need has been satisfied. As the sales-managers, they can continue to motivate their salespeople, such as give the individual projects that drive salesperson to satisfy the higher level needs. Overall, by making the effort to satisfy the different needs each salesperson may have at a given time, organizations may ensure a more highly motivated workforce (Gambrel and Cianci 2003, 143-161).

Theory X and Theory Y 

Douglas McGregor took the work Maslow did with the hierarchy of needs and grouped it into two theories on how people view human behaviour at work and organizational life. McGregor called this Theory X .The “higher order” needs put forward by Abraham Maslow to a Theory Y leadership style, and “lower order”  needs to the Theory X leadership style (Hassan 2005, 14).

McGregor suggests that management could use either theory to motivate salespeople. Theory Y presumes that people like work, and that the employees will exercise self-direction and self control. According to this theory, employees will be motivated by responsibility and actively seek new challenges and goals. Conversely, Theory X presumes that employees inherently dislike work. Likewise this theory presumes that employees shirk responsibility and that employees will seek formal rules and directions whenever possible (Edgar 2011, 156-164).

McGregor’s theories show that security is what people seek. If a sales-manager who run an organization under Theory X, money will then become a motivator for the salespeople. However, if the sales-manger manages under Theory Y, money may be a part of the business but is not what drive the salespeople to achieve (Mendenhall and Oddou 1983, 291) .

Dual-Factor Theory

A theory of motivation developed by Frederick Hertzberg is called dual-factory theory, in which sources of dissatisfaction and satisfaction are grouped into two groups: hygiene and motivators factors. Examples of hygiene factors are working conditions, security, and salary. There are called hygiene factors because they deal with the condition of the work environment, and not the work itself. Absent of “hygiene factors” can cause dissatisfaction, but presence of these factors would bring theoretical zero-level, but would not result in a positive motivation. If positive motivations were to be achieved, attention would have to be given to “motivators factors”. These include recognition, responsibility, and challenge. These factors are part of the job. For the salesperson to feel motivation, these “motivators factors” must be present (Oscar W, Ali and Erdener 2005).

Money is a hygiene factor. It is a biological need because salespeople need money for food, water, and shelter. Money becomes a drive for all people because of this truth. It will give a short run of motivation because we need it to survive. However, Herzberg noted that in the long run, money does not motivate better performance, especially what is expected, such as with straight salary. He encouraged job rotation and job enlargement as better motivators as they keep employees active and gives them diversified work (Russ 2011, 823-836).

A comparison of Maslow’s and Herzberg’s theories is shown in the figure 1.1. The proposed motivation theories of Maslow and Herzberg are not very different refers to human needs with the same problem. However, Maslow’s theory refers to human needs whereas Herzberg talks of goal and rewards which satisfy those needs (Pat 2002, 50).

Recently, sales-managers across all industries are beginning to realize that while money are initially motivating, intrinsic rewards are critical in drawing higher levels of performance from the sales-force (Miao, Evans and Shaoming 2007, 417). In this section, three types of intrinsic motivations will be discussed in detail below: recognition, personal growth and sense of accomplishment.

Recognition

Recognition for task completed is an important motivator factor to salespeople (Workman, Homburg and Jensen 2003, 3). Many sales managers use the recognition programs to motivate their sales-force. Cacioppe (1999, 322-331) conducted a study comparing 2 popular companies’ incentives systems which are “Trigon Blue Cross Blue Shield” and “Motorola”. The result showed that there are 4 categories of team recognition rewards which are direction, support, reinforcement, and celebration that could be used to motivate team performance. This concluded that organisations should reward and recognise their employees wisely since it positively relates to the motivation of employees.

Sense of Accomplishment

Sense of accomplishment is the feelings of success and satisfaction that derived from a completed task. Employees would be motivated to carry on in tasks and had the desire to learn additional skills if they feel that they were able to handle and achieve their target (Srivastava and Rangarajan 2008, 151-160). Ross (1995, 231-247) conducted a research among the employees in hospitality industry to investigate the relationship between sense of accomplishment and employees’ motivation. A total of 400 distributed questionnaires to employees that are randomly selected from major hotels in the Cairns city. The study proved that the higher the sense of accomplishment, the higher the motivation for salesperson.

Personal Growth 

Personal growth is a means of achieving future goals and rewards, particularly career advancement and is a satisfying end in itself (Gray and Wert-Gray 1999, 53-59). Hence, the most successful method of motivating is to build challenge and opportunity for achievement into the job itself. The most common way is through training and development. Tabassi and Bakar (2009, 471-481) conducted a research to explore the relationship between training and employees’ motivation. The study concluded that training and development program had a positive relationship with motivation. This also proves that the personal growth is positively related to motivation of salespeople.

Summary and conclusion

Maslow, Herzberg, and McGregor theories studied show that money is a biological need. Also, it will give short run motivation to salesperson as they need it to survive. However, in the long run, Herzberg noted that money does not motivate better performance because once the basic needs of an individual are met they move to other factors to motivate themselves to the higher level of performance such as recognition, personal growth and sense of accomplishment. Overall, money is not the only element in motivating a salesperson to do a job well. Employers cannot just pay employees more in order to get the most out of them, but they need to bring other factors to the workplace in order to motivate employees to give their all.

References

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Website References

Frank, Rumbauskas. November 17, 2010.                                                                               Salary or Salary + Commission.  http://www.eyesonsales.com/content/article/salary_or_salary_commission/ (accessed August 15, 2011).

Wolfe, Ira. January 23, 2011.                                                                                                   5 Tips for Hiring Salespeople Who Produce Quick Results.                                                                                           http://blog.super-solutions.com/?Tag=sales (accessed August 15, 2011).