Does Status Trump Financial Reward?
What motivates employees most? Is it status or money? A recent Dutch study looked to address these very questions by examining the impact of team sales contests on sales growth in the retail sector and found that under specific conditions employees were motivated by both financial incentives and status amongst peers, but most predominantly by status. The style of manager leadership was also found to increase employee performance, with a transformational leadership style having the greatest impact.
Key Topics: Sales contests; Employee performance; Status; Incentives; Leadership style
Title of Reviewed Article: The role of status and leadership style in sales contests: A natural field experiment
Researchers: Willem Verbeke (Erasmus University Rotterdam), Richard P. Bagozzi (University of Michigan), and Frank D. Belschak (University of Amsterdam).
Publication: Journal of Business Research, 2016, Vol. 69 No. 10, pp. 4112–4120.
Setting the Scene
For most companies, at the core of their success is the strength of their sales employees and in an increasingly competitive business landscape, companies must optimally motivate their employees in order to achieve sales success. Research suggests that both incentives and management leadership behaviour can improve sales employees' effort and performance (e.g., Jaworski & Kohli, 1993).
A motivational tool often employed by companies is the sales contest, whereby salespeople within the company compete against each other (e.g., Lim, Ahearne, & Ham, 2009), which differentiates sales contests from other compensation plans that assess employees primarily based on their individual performance rather than against others (Kalra & Shi, 2001).
Sales contests are intended to motivate salespeople beyond the level of effort generated through their regular compensation structure (Kalra & Shi, 2001). Research suggests that the combined status and financial reward typically on offer through these contests have a strong effect on both sales effort and performance (e.g., Murphy & Dacin, 1998; Murphy et al., 2004), while others have argued that it is the desire for status that is the primary driver of greater sales performance (Heffetz & Frank, 2009).
Leadership style is another factor which has been demonstrated to affect performance (e.g. Stewart, 2006), and transactional and transformational leadership styles in particular have been linked to employee performance and motivation (e.g., Bass, 1999). Transformational leadership focuses on team goals, identity, and commitment (Akerlof & Kranton, 2005; Walumbwa, Avolio, & Zhu, 2008), while transactional leadership creates clear goals and rewards subordinate compliance (MacKenzie, Podsakoff, & Rich, 2001).
With the above context in mind, the researchers put forward the following hypotheses for examination:
Hypothesis 1a – “Compared to a control condition, teams in the financial/status reward condition will generate significantly higher sales growth.”
Hypothesis 1b – “Compared to a control condition, teams in the status-only condition will generate significantly higher sales growth.”
Hypothesis 2 – “Compared to a status-only condition, teams in the financial/status reward condition will generate significantly higher sales growth.”
H3a – “Greater sales growth will occur in the financial/status condition versus the control condition, the greater the transformational leadership behavior.”
H3b – “Greater sales growth will occur in the status-only condition versus the control condition, the greater the transformational leadership behavior.”
How the research was conducted
This study involved sales contests being run by a large European clothing, footwear, and sports apparel retailer. There were two sales contests, which lasted six weeks each, with a gap of approximately 20 weeks between them.
105 stores participated in the study and on average, each store had 12 employees, consisting of cashiers and sales staff. Weekly sales data was collected from each store.
The study’s focus was on team performance, with sales contests being between sales teams rather than individual salespeople.
Three conditions existed, which were a control condition, a financial/status reward condition, and a status-only condition.
65 stores took part in a sales contest with a monetary reward for stores with the greatest sales growth, where winners were publicly announced (financial/status reward condition), and 60 stores took part in a sales contest with only public announcement of winners offered by way of reward for sales growth (status-only condition). The control condition involved examination of store performance when there was no sales contest in place.
Before the sales contests began, a leadership questionnaire was administered to store managers. The questionnaire was adopted from De Hoogh, Den Hartog, & Koopman (2004).
Key Research Findings
Only the status condition was found to have a positive effect on sales growth, and as such Hypothesis 1b was supported while Hypothesis 1a was not.
Hypothesis 2 was not supported as teams in the financial/status reward condition did not generate significantly higher sales growth when compared to the status-only condition.
A significant relationship was found between transformational leadership and sales performance in the financial/status reward condition, which supports Hypothesis 3a. Conversely, no relationship was found between transformational leadership and the status-only condition, and as such Hypothesis 3b was not supported.
This study indicates that non-monetary rewards, namely status, can act as a key motivator in team based sales contests, which is consistent with prior research which suggested that the opportunity for greater status could increase team member performance (Loch et al., 2006).
Interestingly, combined financial/status rewards did not lead to greater sales performance above those created in the status only condition, indicated that status alone was sufficient to motivate sales increases and that there was limited value in providing additional financial rewards.
Furthermore, the results suggest that it is possible that the financial reward component acted to suppress the effect of the status component, when both were offered. This detrimental effect may act in a similar way to the established detrimental effect rewards can have on intrinsic motivation (e.g., Frey & Oberholzer-Gee, 1997).
The results indicate that transformational leadership can have a significant bearing on sales performance, particularly under conditions where financial and status rewards are offered. The researchers speculate that this may be as a result of such leaders facilitating greater focus on tangible financial reward targets, as well as emphasizing greater group identity (Chen et al., 2007)
Organizational and Reward Implications
This study highlights the need for those designing sales compensation plans to take a broader view on reward mechanisms than purely financial rewards, and to be mindful that contrary to popular belief, financial rewards can have a detrimental effect under certain conditions.
This study also highlights the importance of environmental factors in successful sales compensation, and in this case the role of transformational leadership. The results reinforce the importance of managers in encouraging and directing employees towards individual and team goals. In this regard, when reviewing and designing sales compensation, companies should ensure that management has the appropriate capabilities to support success.
Often financial compensation is seen as king when it comes to rewarding salespeople, however this study offers a more nuanced view on rewarding salespeople by highlighting the importance of status, as well as leadership style. Future research further examining the suppression effect of financial rewards on the effects of status type reward and whether this effect differs depending on the level of financial reward, would be valuable. Similar research in other sales environment is also encouraged, to further establish the validity of the current study.
Source Article: Verbeke, W., Bagozzi, R. P., & Belschak, F. D. (2016). The role of status and leadership style in sales contests: A natural field experiment. Journal of Business Research, 69(10), 4112–4120.
Published by: Elsevier Inc.
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