Question

For the past decade, your company has encouraged sales teams to work together in a cooperative and cohesive manner. This initiative is closely aligned with one of the company’s core values: “Together, we achieve more.” To motivate sales associates to cooperate with one another in their respective teams, at the end of each fiscal year, team managers evaluate their respective teams by rating them on a number of behavioral dimensions related to cooperation and cohesion. Teams that receive high marks on their evaluations receive year-end bonuses, and this bonus program accounts for 10% of compensation for those working as salespeople; the remaining 90% of compensation is distributed in the form of a base salary. Thus far, the company has found this pay-for-performance system to be quite effective, as team cooperation and cohesion have improved demonstrably.

Lately, your company has lost some of its top sales associates to competitors, and exit interviews revealed that some sales associates believed that they were not recognized and rewarded for their unique, individual contributions to the organization—namely, their sales productivity. To address this issue, the company has decided to implement a new pay-for-performance program designed to reward individual sales associates for their sales productivity; specifically, the company plans to implement a sales commission program. This new variable-pay program constitutes 40% of their compensation, and the remaining 60% will be distributed in the form of a base salary (50%) and a team bonus based on manager ratings of team cooperation and cohesion (10%). Ultimately, the organization wants to incentivize team cooperation and cohesion as well as individual sales productivity in an effort to encourage collaboration and individual contributions.

Consider the entire compensation package from a systems perspective. Do you have any concerns regarding the implementation of the new sales commission program? Do you think there will be any unintended consequences? Consider this decision using the following criteria.

Please provide the rationale for your answer to each of the questions below.

Is the compensation package legal, ethical, and fair?

Is it evidence based/evidence informed?

Does it foster healthy employee–employer relationships?

Is it time and cost effective?

Does it take a systematic stakeholder perspective?

Considering your analysis, overall, do you think this would be an effective decision? Why or why not?

What, if anything, do you think should be done differently or considered to help make this decision more effective?

Answer 1

Yes, I do have concerns about the new sales commission program. Yes, there will be unintended consequences because of this new sales commission program. The reasons are:

- It is not fair and legal to reduce the base salary and provide a large portion of variable pay (40%). Sales people who had been with the company for a longer time would be demotivated as the major portion of base pay has been cut.

- Ethically speaking, the management’s decision regarding base pay salary cut is not morally correct. It lowers the morale of the sales people which results in lower productivity. According to Utilitarian theory, this is an immoral act because it does not good greater good for greater number of people.

- The management’s decision is evidence-informed because the organization did not conduct any validated scientific process (evidence-based) to arrive at a decision. Hence, the company would have used any previously tried and tested research. However, it is not suitable for the company and its salespeople.

- The management’s decision would only result in increased attrition rate and an unhealthy employer-employee relationship. The reason is because the employees would be demotivated and their morale lowered by this decision.

- It is absolutely not time and cost effective. The reason is that the salespeople who are demotivated would move to other companies. This would result in loss of money and time spent in developing the salespeople.

- Absolutely. This action would take a systematic stakeholder perspective because all the stakeholders of the organization would now look upon the issue as a matter of urgency to avoid loss of sales people and money. Specifically, the investors and the management would be concerned about the plight of the organization when the salespeople are demotivated.

- Considering the above analysis, I would say that this is not an effective decision. Rewards are only extrinsic rewards for the salespeople which made people to quit. Sales personnel feel that they are not recognized for their performance. This indicates that the company has not considered intrinsic factors of motivation such as recognition, promotion, etc to motivate the sales people. It is obvious that all sales people would not be satisfied with just the variable pay which would only worsen the situation.

- The thing that has to be done differently is to maintain the base pay as it is. However, additional intrinsic rewards need to be provided to motivate employees. Examples of intrinsic rewards should include participating in sports events, learning and development skills, certificate of appreciation, etc. Additionally, the team performance that are calibrated for bonus for the sales people should also include others in the team as they perform the back end work for the sales people. Hence, both sales and non-sales people in the high performing team should be rewarded.

Note- If you like the answer, please provide an up-vote as it would be quite encouraging for me. Thank you.