The Impact of Compensation Systems on Salespeople´s Motivation
Type
conference paper
Date Issued
2022
Author(s)
Abstract (De)
Salespeople are one of the major contributors to a firm’s survival by virtue of their role as nexus between the firm and its customers (Küster & Canales, 2010). Therefore, it is essential to (positively) influence the behavior specifically of those employees. This can be done with the help of Sales Management Control Systems (MCS) which are designed to align salespeople’s activities and actions with organizational objectives (Malek et al., 2018).
All researchers in the MCS area agree that compensation is one of the most powerful tools for organizations to influence their employees´ motivation and behavior (Milkovich, 2013). Motivation again is known as one of the strongest determinants of a salesperson’s overall performance (Churchill et al. 1985). Hence, until now various research focused on the design and application of incentive-based sales force compensation as control systems to influence salesperson performance or rather, especially salesperson motivation and found evidence that monetary rewards are the strongest motivators for salespeople to spur greater sales force effort (e.g., Chung & Narayandas, 2017; Segalla et al., 2006; Krafft et al., 2012; Johnson et al., 2016). This interrelation follows the view of the Expectancy Theory which is based on the principle of Homo Oeconomicus and which sees a human being as a rational utility maximizer (Vroom, 1964). Salespeople strive to maximize (variable) compensation rather than to establish a sustainable customer relationship designed for the long term (Frey, 2002). This theory can be contrasted by the Self-Determination Theory (SDT) which questions the motivating effect of incentive-based compensation. The SDT indicates that incentive-based compensation can undermine intrinsic motivation under certain circumstances. This so-called Crowding-Out Effect can among others have a negative impact on people’s performance and consequential also on organizational performance (Deci, 1971).
Based on these theoretical approaches, a long-term research program was created which should examine the impact of sales compensation systems on various outcomes, such as e.g. salespeople’s motivation, their performance, or job satisfaction. The whole research will be conducted using a sample drawn from an international industrial company, across eleven different countries worldwide (e.g., Austria, Hong Kong, or the United States of Amerika) that have recently changed their sales compensation systems from a higher variable, individual target-based compensation to a lower one with a higher fixed pay. This gives us a perfect and unique data set for analyzing perceived (before and after or rather only after) differences among salespeople regarding the change in their compensation system.
The research project which will be proposed in the following puts the outcome of salespeople’s motivation in the center. Therefore, within this research we aim to answer the following research questions:
• What is the impact of a low incentive-based compensation on intrinsic (extrinsic) motivation and further on self-reported work effort?
• Does, from a motivational perspective, low incentive-based compensation (compared to a high incentive-based compensation) improve an employee’s intrinsic motivation in order to increase their performance?
With this research approach, we offer two contributions to the literature. Firstly, most research on compensation design has focused on adding an incentive-based component to their pay and understanding their impact on a salesperson’s performance and motivation. Multiple scholars tried to answer questions like which incentive-based compensation types should a firm offer to its sales force to maximize profits and what combination of salary, commission, and/or bonuses should be used (Chung et al., 2014). In this study, we aim to look at the various theoretical mechanisms the other way around, i.e. what impact does it have on a salesperson when incentive-based pay is reduced. Does it really increase the intrinsic motivation as predicted with a logical inversion of the arguments of the Crowding-Out Effect? Therefore, one could say that this research project looks at a so-called Crowding-In Effect.
Secondly, there is hardly any research on the Crowding-In Effect in general or rather let alone in an organizational, real-life context. Connected with this aspect, researchers question whether experimental findings can be transferred into a real-life working environment. This study provides more empirical evidence by looking at the research topic in an organizational setting.
All researchers in the MCS area agree that compensation is one of the most powerful tools for organizations to influence their employees´ motivation and behavior (Milkovich, 2013). Motivation again is known as one of the strongest determinants of a salesperson’s overall performance (Churchill et al. 1985). Hence, until now various research focused on the design and application of incentive-based sales force compensation as control systems to influence salesperson performance or rather, especially salesperson motivation and found evidence that monetary rewards are the strongest motivators for salespeople to spur greater sales force effort (e.g., Chung & Narayandas, 2017; Segalla et al., 2006; Krafft et al., 2012; Johnson et al., 2016). This interrelation follows the view of the Expectancy Theory which is based on the principle of Homo Oeconomicus and which sees a human being as a rational utility maximizer (Vroom, 1964). Salespeople strive to maximize (variable) compensation rather than to establish a sustainable customer relationship designed for the long term (Frey, 2002). This theory can be contrasted by the Self-Determination Theory (SDT) which questions the motivating effect of incentive-based compensation. The SDT indicates that incentive-based compensation can undermine intrinsic motivation under certain circumstances. This so-called Crowding-Out Effect can among others have a negative impact on people’s performance and consequential also on organizational performance (Deci, 1971).
Based on these theoretical approaches, a long-term research program was created which should examine the impact of sales compensation systems on various outcomes, such as e.g. salespeople’s motivation, their performance, or job satisfaction. The whole research will be conducted using a sample drawn from an international industrial company, across eleven different countries worldwide (e.g., Austria, Hong Kong, or the United States of Amerika) that have recently changed their sales compensation systems from a higher variable, individual target-based compensation to a lower one with a higher fixed pay. This gives us a perfect and unique data set for analyzing perceived (before and after or rather only after) differences among salespeople regarding the change in their compensation system.
The research project which will be proposed in the following puts the outcome of salespeople’s motivation in the center. Therefore, within this research we aim to answer the following research questions:
• What is the impact of a low incentive-based compensation on intrinsic (extrinsic) motivation and further on self-reported work effort?
• Does, from a motivational perspective, low incentive-based compensation (compared to a high incentive-based compensation) improve an employee’s intrinsic motivation in order to increase their performance?
With this research approach, we offer two contributions to the literature. Firstly, most research on compensation design has focused on adding an incentive-based component to their pay and understanding their impact on a salesperson’s performance and motivation. Multiple scholars tried to answer questions like which incentive-based compensation types should a firm offer to its sales force to maximize profits and what combination of salary, commission, and/or bonuses should be used (Chung et al., 2014). In this study, we aim to look at the various theoretical mechanisms the other way around, i.e. what impact does it have on a salesperson when incentive-based pay is reduced. Does it really increase the intrinsic motivation as predicted with a logical inversion of the arguments of the Crowding-Out Effect? Therefore, one could say that this research project looks at a so-called Crowding-In Effect.
Secondly, there is hardly any research on the Crowding-In Effect in general or rather let alone in an organizational, real-life context. Connected with this aspect, researchers question whether experimental findings can be transferred into a real-life working environment. This study provides more empirical evidence by looking at the research topic in an organizational setting.
Language
English
Publisher
ERMAC
Pages
8
Event Title
ERMAC
Event Location
Wien
Event Date
19.06-21.06.2022
Subject(s)
Eprints ID
268122