A Study on Sales Force Compensation Practices in Automobile Industry

Transcription

1 A Study on Sales Force Compensation Practices in Automobile Industry V.Venkata Rao 1 & Santosh Theegala 2 1 Research Scholar, Department of commerce and Business Management, Nagarjuna University, Guntur, AP, India. 2 Assistant Professor, MBA Department, RK Business School, Hyderabad, Telangana, India. Abstract Effective management and motivation of sales force is crucial for the success of any organization. Compensation is one of the most important rewards used to motivate sales force. It becomes important issue to the organizations to design an effective compensation system for sales force and to know how sales force perceives their compensation. The current study aims to reveal sales force compensation practices in automobile industry, and the sales force view about their compensation program. For this study, a sample of 126 respondents in various designations of sales department in an automobile industry was chosen with convenient sampling technique. Applied statistical tools include Cronbach s alpha, descriptive statistics and cross order correlation. We found a mixed opinion on compensation practices in automobiles industry. Keywords: Compensation, Compensation System, Sales Force, Benefits. Introduction A company s success or failure relies on sales. Sales force is usually the driving force of revenues - top-line company growth. Sales people play a key role in organization as they promote the products and services of the company. They are the face of the organization. Especially in automobile industry, sales people are in front line and have a direct impact on how the market perceives their organization and its products. Compensating sales people is always a tough task because the way sales people conduct themselves is often a reflection of the company s compensation program; and how well the company does is often a reflection of the effectiveness of its compensation program. A well-designed compensation program focuses salespeople on activities that support the company's business objectives, and, in turn, rewards those salespeople for their contributions. Compensating Sales people for their contributions can fall under many different types of sales compensation plans. In many types of sales compensation plans, sales force expect to find and pursue sales opportunities individually, in pairs, or small groups. However, the way that organizations consider a review of the sales compensation plan as well as sales people who are wondering which type of sales compensation plan is best for them may want to become more familiar with the different types of sales compensation plans available. The current study tries to explore the compensation practices designed for sales people in automobile industry, and the opinion of sales people regarding compensation practices in their organization. Literature Review Compensating sales force has received a great deal of attention in management literature and is now being recognize as critical success factor of many organizations. Coughlan (1993), Coughlan and Sen (1989,1986) discussed in detailed on the importance of sales people compensation. Sales force compensation is considered to be a very special problem that has little similarity with compensation in other functional areas. Basu et. al. (1985) discusses on compensation scheme consisting of salary and a commission on sales, and provides a theoretical basis for an analysis on the nature of the compensation scheme. A large portion of the empirical work done in the area of sales force compensation based on transaction cost analysis (Williamson 1975). John and Weitz (1989) and Anderson and Oliver (1987) are good examples. Anderson (1985) discovered that the choice of using a salaried sales force as opposed to a largely commissioned based one depends on how well the organization can objectively measure sales force performance for example, sales and costs. Pendergast (1999) provides a good overview of the literature on incentives. The literature thus provides a broad set of analytically derived prescriptions on optimal compensation setting, which largely supported in empirical studies (with the exception of John and Weitz 1988). Stroh et al. (1996) found that manufacturing industry was more inclined than other sectors of the economy to pay sales staff a salary, claiming that this was because they are more capital intensive, something that is inversely related to the use of variable pay. Krafft (1999) and Coughlan and Narasimhan (1992) contend that the most productive and experienced sales personnel should receive a higher proportion of variable compensation, because their marginal contribution to the organization s profits is above average that is, greater weaker colleagues. From the insights of the above literature, the current study examines compensation practices for sales force in automobile industry and sales people perception towards their compensation. Research Methodology The current study is a descriptive research on a sample of 126 respondents who were sales force with various designations from automobile industry. Various statistical tools includes cronbach s alpha for reliability, descriptive statistics for frequencies and cross order correlation for internal consistency were applied for analysis. 7

2 Data Analysis & Interpretation Table: 1 Table: 2 Reliability Statistics Scale Statistics Cronbach's Alpha N of Items Mean Variance Std. Deviation N of Items Table: 1 & 2 Shows Scale reliability. The reliability of the questionnaire was tested using Cronbach s alpha. The result was Hence, the questionnaire proved its reliability. Table: 3 Table: 4 Age of the respondents Educational Qualification of the respondents S.S.C Inter Graduation PG above Table: 5 Table: 6 Salary range of the respondents Below above Table 3 -Age of the respondents shows that, approximately 56 percent of participants in this study were young men in the age group of Nearly 28 percent of the respondents were in the age group of Around 13 percent of the respondents were in the age group of Only two percent of the respondents were in the age group and two percent were from above 42 age group. Table 4- Education of the respondents shows that, majority (75, 65%) of the respondents were graduates. Around 36 percent of the respondents were post graduates. Only three percent were from intermediate background and approximately one percent was from S.S.C education background. Table 5- Salary range of the respondents shows that, majority of the respondents (74, 59%) were earning the salary up to Around 25 percent of the respondents were earning below Nearly 12 percent of the respondents were earning up to Only two percent of the respondents were earning and one percent of the respondents were earning above Table 6 -xpeerience of the respondents shows that, nearly 48 percent of the participants have 0-3 years of experience. Around 36 percent of the participants have 4-7 years of experience. Nearly 11 percent of the participants have 8-11 years of experience. Only four percent of the participants have years and two percent of the participants were more than 15 years experienced. Around 98 percent of the respondents were male. Female were limited to only two percent of the total respondents. Around 78 percent of the respondents were executives. Nearly ten percent of the respondents were senior executives. Ten percent of the respondents were team leaders. Only two percent of the respondents were managers in the Automobile Industry. Seven percent of the total employees work 7-8 hours a day. Nearly 17 percent of the employees work 8-9 hours a day. Majority of the employees i.e. 40 percent work 9-10 hours a day. There were 30 percent of the employees who work hours a day. Only six percent of the employees work more than 12 hours in a day. Table: 7 Correlations Comp Comp Comp Comp Comp Comp Sys1 Sys2 Sys3 Sys4 Sys4 Sys6 Pearson Correlation **.601 **.557 **.630 **.493 ** CompSys1 Sig. (2-tailed) Pearson Correlation **.514 **.450 **.415 ** CompSys2 Sig. (2-tailed) Pearson Correlation **.558 **.475 ** CompSys3 Sig. (2-tailed) Pearson Correlation **.344 ** CompSys4 Sig. (2-tailed) Pearson Correlation ** CompSys5 CompSys6 Sig. (2-tailed).000 Pearson Correlation 1 Sig. (2-tailed) **. Correlation is significant at the 0.01 level (2-tailed). 8 Total Experience of the respondents above

3 Table: 7 shows cross order correlation of the employee compensation system. The cross order correlations among items 1-6 were significantly correlated at 0.01 percent significance level. The study found a significant positive correlation (r = 0.60, Sig.0.01) between organization compensation system and appropriate work pay. Next, organization compensation system was significantly correlated to external equity. A significant positive correlation was found (r = 0.51.Sig.0.01) between external equity and appropriate work pay. External equity was significantly correlated with individual equity. It was identified that there was significant positive correlation (r = 0.55 Sig.0.01) between appropriate work pay and individual equity. A significant positive correlation was identified between individual equity and compensation policies. However, a weak positive correlation was identified between compensation system and internal equity. It was identified that there was a weak positive correlation between external equity and internal equity. A weak positive correlation (r=0.32, Sig.0.01) was identified between compensation policies and internal equity. Befts1 Befts2 Befts3 Befts4 Befts5 Befts6 Table: 8 Correlations Befts1 Befts2 Befts3 Befts4 Befts5 Befts6 Pearson Correlation **.438 **.454 **.359 **.407 ** Sig. (2-tailed) Pearson Correlation **.732 **.500 **.496 ** Sig. (2-tailed) Pearson Correlation **.473 **.523 ** Sig. (2-tailed) Pearson Correlation **.500 ** Sig. (2-tailed) Pearson Correlation ** Sig. (2-tailed).000 Pearson Correlation 1 Sig. (2-tailed) **. Correlation is significant at the 0.01 level (2-tailed). Table: 8 shows cross order correlation of the employee benefits. The cross order correlations among items 1-6 were significantly correlated at 0.01 percent significance level. We found a significant positive correlation (r = 0.51, Sig.0.01) between team based incentive system and fringe benefits. It was identified that there was a significant positive correlation (r = 0.73, Sig.0.01) between fringe benefits and sufficient pay. A significant positive correlation was identified between fringe benefits and allowances. It was recognized that there was a significant positive correlation (r = 0.64, Sig.0.01) between allowances and sufficient pay. A significant positive correlation was identified between allowances and incentive schemes. It was identified that there was a significant positive correlation between sufficient pay and annual bonus. However, weak positive correlation was identified between team based incentive system and annual one-time bonus, between team based incentive system and incentive schemes. It was found that there was weak positive correlation between annual bonus and incentive schemes. Table: 9 Compensation System SD D NAD A SA TOTAL My organization compensation system is able Frequency to recognize individual contribution Percentage My pay is comparable to employees who Frequency perform similar jobs in other firms Percentage I am paid appropriate for my work Frequency Percentage I receive more compensation when I perform Frequency better than my colleagues Percentage My organization compensation policies are Frequency able to attract, retain &motivate employees Percentage We receive pay according to the relative value Frequency of jobs within our organization Percentage SD=Strongly Disagree, D=Disagree, NAD=Neither Agree nor Disagree, A=Agree, SA=Strongly Agree 9

4 Table: 10 loyee Benefits SD D NAD A SA TOTAL Team based incentive system is there in my Frequency Organization Percentage Fringe benefits offered are valuable to me Frequency Percentage I am satisfied with the allowances provided by Frequency my organization Percentage I am able to meet my family needs with the Frequency Compensation I receive from my organization Percentage My organization pay one time annual bonus Frequency based on our productivity Percentage I am satisfied with the incentive schemes of Frequency my organization Percentage SD=Strongly Disagree, D=Disagree, NAD=Neither Agree nor Disagree, A=Agree, SA=Strongly Agree Compensation system: Table: 9 represents employee s response regarding compensation system. It was found that 39 percent of total respondents have agreed and 15 percent have strongly agreed that their compensation system was able to recognize individual contribution. However, 17 percent have strongly disagreed. Around 29 percent of total respondents have agreed that their pay is comparable to employees who perform similar jobs in other firms. Around 19 percent have disagreed and 20 percent have neither agreed nor disagreed. The number of respondents who have agreed that they were paid appropriate for their work amounted to 32 percent and 26 percent have disagreed with the statement. 37 percent and 32 percent have agreed and disagreed respectively with the fact they receive more compensation when they perform better than their colleagues do. However, 14 percent have strongly dis-agreed. Regarding compensation policies, 32 percent of the employees agreed and 23 percent have strongly agreed that their compensation policies were able to attract, retain &motivate employees. However, 17 percent have strongly disagreed. With regard to internal equity, 27 percent of the respondents have agreed that they receive pay according to the relative value of jobs within their organization. Whereas, 24 percent have strongly disagreed and 22 percent have neither agreed nor disagreed. loyee benefits Table: 10 depicts employee s response regarding employee benefits. It was identified that approximately 32 percent have strongly disagreed and 17 percent have disagreed. However, 22 percent have strongly agreed and 22 percent agreed with the fact that Team based incentive system existed there in their organization. The statement Fringe benefits offered are valuable to me was strongly disagreed by 27 percent of the total respondents and disagreed by 25 percent. However, it was agreed by 24 percent of the respondents. Regarding allowances, 31 percent of the employees have agreed that they are satisfied with the allowances provided by organization, whereas 29 percent have strongly disagreed. Out of the total respondents, 34 percent have strongly disagreed and 18 percent have disagreed that their family needs are satisfied with their compensation. However, 21 percent have agreed with this statement. With regard to bonus, 32 percent have agreed that their organization pay one time annual bonus based on their productivity. Whereas 29 percent have strongly disagreed. Around 35 percent of the participants have agreed that they are satisfied with the incentive schemes of their organization 19 percent have disagreed and 21 percent have neither agreed nor disagreed with this matter. Conclusion In this study, we found that there exists a significant positive relationship between compensation system and appropriate work pay, and between fringe benefits and sufficient pay. On the other hand, we identified a weak relationship between organization compensation system and external equity, and also between team based incentive system and allowances. In summary, the findings of our study revealed that compensation system is pivotal to motivate sales force and to earn higher revenues. There is a direct impact of compensation system on sales force performance. Based on the findings of the study we suggest that, to enhance sales force morale and efficiency the organization should design well drafted and well reached compensation system. References Basu A., R. Lal, V. Srinivasan, and R. Staelin. (1985). Salesforce Compensation Plans: An Agency Theoretic Perspective, Marketing Science 4, Caldieraro, Fabio and Anne T. Coughlan (2007), Spiffed-up channels: the role of spiffs in hierarchical selling organizations, Marketing Science, 26 (1), Colletti, Jerome A., David J. Cichelli, S.D. Linser, J.F. Martin, D.S. Schattinger and Gary S. Tubridy (1988), Current Practices in Sales Incentives, New York: The Alexander Group. Coughlan, A.T. and S.K. Sen. (1989). Salesforce Compensation: Theory and Managerial Implications, Marketing Science, 8(4), Coughlan, Anne T. and Chakravarthi Narasimhan (1992), An empirical analysis of sales-force compensation plans, Journal of Business, 65 (1),

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