Much of
what we believe about the best ways to compensate and motivate the sales force
is based on theory and lab experiments. But in the past decade, researchers
have been moving out of the lab and into the field, analyzing companies’ sales
and pay data, and conducting experiments involving actual salespeople. The
findings from this new wave of research support some current compensation
practices but call others into question. For example, studies clearly show that
caps on commissions hurt sales. If managers must retain a cap, they should set
it as high as possible to avoid reducing reps’ incentives. Although overly
complicated compensation systems have their downsides, research has found that
a system needs to include enough elements (such as quarterly performance and
overachievement bonuses) to keep high performers, low performers, and average
performers engaged throughout the year. Managers should be careful in setting
and adjusting quotas. For instance, studies show that ratcheting (raising a
salesperson’s annual quota if he or she exceeded it the previous year) dampens
motivation. The research also suggests that it’s important to pay attention to
the timing of bonuses: A reward given at the end of a period is more motivating
than one given at the beginning. [ABSTRACT FROM AUTHOR]