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Sales Management - Firm's Motivational Funds

Use of Motivational Funds

The following memo from George McCall, vice president of sales operations at International Chemical Industries, was distributed to all regional and district managers:

Each manager should be prepared to give a short presentation to the group during our national sales meeting next week about how the motivational fund for his or her area was spent in 2002. Being new to the organization, I want to familiarize myself with what we are doing in this important area. Moreover, it seems to me that many of you may be doing some things that would be of interest to the other managers.

Underlying McCall's memo was a hidden agenda: McCall was suspicious that much of the firm's motivational fund was being squandered on ineffectual motivational tactics. He wanted to open up the subject not only to discover what was going on but also perhaps to develop some uniformity to what everyone was doing.

International Chemical Industries produced and distributed basic chemicals, such as nitrates, sulfur, and potassium, around the globe. It was one of the world's largest chemical concerns. Its U.S. operations were directed from offices in Houston, Texas. The U.S. sales operations were divided into five regions, each of which contained five districts. Thus, there were to be five regional managers and 25 district managers at the meeting the following week.

Historically, management budgeted 3 percent of its sales volume of $722 million for the costs of managing sales operations. Of that amount, 83.3 percent was allotted to field- selling costs, which included the salaries and expenses of both the field sales reps and their field managers. The costs of the regional and district sales offices were covered by the remainder of the sales budget. From that amount, area managers were allotted a small fund of approximately 0.02 percent of sales that could be used for motivational purposes in any manner they desired. For example, the district manager for Chicago spent $70,000 in 2002 on a special motivational program for the area's five reps. (Chicago accounted for 5 percent of the company's U.S. sales volume, or about $36 million.) Each rep who achieved quota for the year received a free trip for two people, all expenses paid, to St. Thomas in the Virgin Islands. All reps won and went together with their spouses for a most successful holiday. The manager planned to institute another such program for 2003. The response to McCall's memo was good. The managers seemed to take delight in relating how they spent their motivational fund. It seemed to McCall that they were in competition with each other to see who could come up with the most innovative plan. McCall was pleased to learn that they had been putting their motivational funds to good use. He also was pleased with the attitudes of the managers. Morale seemed to be high. The managers seemed to relate to each other exceptionally well, except for two isolated cases about which McCall had been made aware by his predecessor and for which he was taking steps to remedy.

In summarizing what he learned from the managers' presentations, he categorized the managers' programs into three groups. Twelve of the district managers had developed some sort of program to reward the sales reps' total effort for the year much along the lines of the Chicago district's program. Seven of the managers used the money for shorter special-purpose programs such as contests to encourage certain desired behavior such as pushing certain products or getting new accounts.

One such program stood out in McCall's mind since it particularly impressed him at the time. The manager of the New York office had become concerned with the tendency of the reps to concentrate on the firm's established accounts. He wanted them to make more calls on potentially new accounts. To that end, he designed a contest to reward those reps who not only called on prospective accounts but also managed to make them new customers. Since it usually took many calls on a prospective account before a sale was made, the contest had been conducted over a two-year period.

Six of the managers used the money for doing several smaller, short-run, action-oriented, one-shot deals. For example, the manager of the Charlotte, North Carolina, district walked into the office one midsummer day waving two season tickets for the city's professional basketball team, She announced, "These go to the person who brings in the first new account this month." That resulted in a flurry of new account activity and a dispute between two reps over who brought in the first new account. The manager settled the argument by giving both of them two season tickets. She made two reps happy. McCall was impressed with her savvy in handling what could have been a sticky situation, on another occasion, she walked in and announced that if the district met its quotas for the quarter, all reps and their families would be treated to a long weekend outing on a chartered boat out of Wilmington. The district sales volume had not been up to plan, but that quickly changed as everyone started working hard for their boat rides.

McCall was not sure which of these models was best for the company, in either the short run or the long run. He had heard some of the managers talking about how much they liked learning about what the other managers were doing with their motivational money. He wondered if such information should be included in the company's monthly newsletter. How would such information be used? Would a rep in Chicago pressure the manager for a contest that provided season tickets to the Bulls or Bears games after learning of the Charlotte program?

After due consideration, McCall felt that the money was being well spent and wondered if it should be increased. He had several questions: What returns were being realized from those expenditures? How could he build a case to his superiors for increasing the motivational funds budget? Should he do it across the board or test it by giving an increased budget to a district manager representative of each of the three types of programs that were evidenced?


1. What should George McCall do about the firm's motivational fund?
2. What policies should George McCall establish regarding the motivational fund?

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What George McCall should do about the firm's motivational fund:

Many People are motivated by money. George McCall should come up with a remuneration policy which should be in line with the remuneration in other businesses for similar work. He has to adjust to the wages or salaries to keep up with the rising cost of inflation and living. This should be able to make sufficient provision for the future and also enable the employees to maintain a realistic standard of living. He should also analyze the company returns if he resorts to increasing the money spent on motivating employees (Sadri & Bowen, 2011).

It is good for him to continue rewarding employees since rewarding led to productivity of the employees. A highly motivated person can end up getting discouraged of working on tasks if he's not rewarded or noticed. People need to know that their good work does not go unnoticed and that they are appreciated. Motivated employees are less likely to leave the organization searching for more fulfilling opportunities, produce greater quantities of work and higher quality and are more likely to engage in organizational citizenship behaviors (Sadri & Bowen, 2011).

Most of the companies compete to attract the most talented individuals by giving them the power to demand more than just a reasonable salary or wage. The most important thing for ...

Solution Summary

The solution discusses sales management including firm's motivational funds.