What's the Right Kind of Bonus to Motivate Your Sales Force?

Doug J. Chung; Das  Narayandas

Article | Harvard Business Review (website) | September 12, 2017

What's the Right Kind of Bonus to Motivate Your Sales Force?

Abstract

Companies typically compensate their sales force by using some combination of salary, commission, and bonuses, but executives are often unsure which incentives provide the best motivation. Should bonuses be tied to quotas or should they be given unconditionally? Is it better to use bonuses as a reward or as punishment? A randomized field experiment at a large Indian company investigated these questions, finding that conditional bonuses were more than twice as effective as unconditional bonuses. The results have implications for companies trying to use bonuses to more effectively manage their salespeople.

Keywords: Compensation and Benefits; Motivation and Incentives; Salesforce Management;

Format: Electronic

Citation:

Chung, Doug J., and Das Narayandas. "What's the Right Kind of Bonus to Motivate Your Sales Force?" Harvard Business Review (website) (September 12, 2017).

Roush Performance manufactured and marketed factory-modified performance vehicles and high-end aftermarket performance products. Since its inception, Roush Performance had concentrated effort on building its engineering technology competency and diversifying its product portfolio to grow sales. Many of its engineers were proud to be on the forefront of technological innovations with the company. In contrast, Roush’s marketing and sales divisions had a somewhat passive role. The sales culture was thought to be stagnant, and sales compensation, one of the key elements in motivating salespeople, had remained unchanged over the past 25 years. Thus, the CEO had instructed the newly appointed VP of marketing to come up with a new sales force compensation scheme to provide salespeople with adequate incentives to increase sales performance. The VP of marketing proposed several alternative schemes, including changes to fixed salaries, commissions, and quota-bonuses. The case provides detailed contents to discuss the effects of various components of compensation on different types of salespeople.

Twenty-four-year old Ritesh Agarwal, founder and CEO of India-based online hotel branding network OYO Rooms, has tackled the issue of unreliability in India's highly fragmented budget hotel industry. In 2018, OYO branded 8,500 properties across 200 cities and managed to capture almost 1.5% of India's budget hotel market. Ritesh believes that in the process, OYO has honed technological skills and infrastructural capabilities that can transform the company from being a technology player to a hotel developer. OYO now aspires to convert corporate spaces and homes into accommodation spaces and to make its mark worldwide.

Faculty & Research

What's the Right Kind of Bonus to Motivate Your Sales Force?

Abstract

Citation:

About the Authors

More from these Authors