This master thesis examines the influences of compensation on the motivation and performance of salespeople. The primary focus is on compensation in the form of fixed and variable salary. Motivation is categorized as internal or external according to Ryan & Deci’s theory on motivation, and according to expectancy and goal setting theory motivation is something that can be influenced by external forces, such as compensation. The focus is on the individual salesperson as the used literature is looking at and examining the relation between compensation, motivation, performance and effectiveness at this level, which is why the principal-agent theory is used. This master thesis is examining which compensation components are significantly motivating for the salespeople and how they can increase the effectiveness of the salespeople, as well as how the components can be used. The analysis shows that fixed salary is more motivating to the salespeople than variable salary is. Fixed salary is also affecting the performance more than variable salary. This is surprising as variable salary often is used to motivate and influence the salespeople’s performance. Motivation can be categorized as internal and external according Ryan & Deci. And research showed that fixed salary had a positive impact on internal motivation, which is conflicting with the theory, that propose that compensation will have a negative impact on internal motivation. The impact of benefits was also briefly discussed, but no final conclusion on its effect could be stated. Regarding the question about compensation’s impact on effectiveness, Barker did a study where he examined several factors that could have an impact on the effectiveness of salespeople’s performances. It showed that salespeople with the highest performance was more satisfied in their job and got a better feeling of realization in their job. This can be interpreted as salespeople, with internal motivation for their job, will perform more effectively, than salespeople who do not have an internal motivation. The study also showed that high performance is fostered best under behavior-based control system and not outcome-based systems. This also favors the use of fixed salary. Goal setting is a tool used to connect compensation to the performance of an employee. Research has showed that higher goals can lead to the employee getting more confidence and believe in him- or herself, which further lead to the employee performing on a higher level. Goal setting is normally tied to the use of variable salary, but since research have showed that fixed salary is more motivating, some goal should be tied to fixed salary as well. This could also solve the issue about the risk of focusing on short-term goals that the use of goal setting can cause. The proper ratio of fixed and variable salary depends on the life cycle of the salesperson’s career, the product, the organization and the business, which each is divided into four stages where different ratios are suitable.
|Educations||MSc in Human Resource Management, (Graduate Programme) Final Thesis|
|Number of pages||79|