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Using variable pay programs to motivate employees

Looking at an example of IBM where the sales staff are paid using variable pay programs, whereas the software engineers are not. Why is this technique used on some staff and not others?

Variable-pay programs are programs in which employees are rewarded for achieving goals or receive profit shares on certain goals based on their performance. Belcher (1994) stated that at the time of the writing of the article, variable pay programs were being “creatively designed to meet the unique and ever-changing needs of the business”.

In my opinion, the decision to not reward System Engineers is not un-wise. It is safe to assume that IBM is not financially unstable but even in a company of that size there are limited resources. A broad judgement on the situation is that it is more than likely not feasible to offer reward programs to all aspects of the business.

If a sales person succeeds well at their job we can translate their performance directly into what value they have added to the company. Signing a 3 year contract at $1mil per year means that is what the sale person has brought to the company, working out how much of that he/she can be given as a bonus is quite easy, and if we have guaranteed more income, then we are most likely able to afford to give the sales person a bonus in relation to the sale they have just made.

As far as a Systems Engineer goes, while they are vital to the successes of the company it is hard to differentiate their successes as worthy of a bonus (an outstanding performance worthy of a reward) when comparing it to what one would expect from someone in that position. One could argue the same towards a salesman but fixing a server crash is not necessarily something that wins the company new contracts and livelihood.

Another point that is quite important to consider is the salary of the two different professions. If we take a look at PayScale’s (2011) national salary data for the United States the average pay for a sales representative (including profit sharing, commissions, bonuses and basic salary) ranges between $31 900 and $50 610 per year. Comparing this to PayScale’s (2011) average salary for Systems Engineers the amount is $62 297, which tells us that the average Systems Engineer in the US earns about $12000 per year more than the highest paid sales representative, including bonus, profit share and commissions.

In my experience as being both the employer and the employee on a day to day basis (due to the fact that I outsource some development, I have clients who hire me and developers who work for me), I personally would adopt the same method of payment as it is important to drive your sales team to achieve as many sales as possible. Basic salaries of sales people are remarkably less than that of engineers and most developers are satisfied with steady, decent salaries.

This is not to say that engineers do not want rewards; that would be a very inaccurate generalisation. But without the regular sales coming in, in most scenarios, it would become difficult to sustain constant rewards and bonuses.

To conclude my discussion I would like to say that it is in my opinion that the decision toward rewarding Sales people in IBM and not Systems Engineers is not to the detriment of the company. Comparing the two professions is like comparing apples and bananas – they are too different and one cannot easily apply the rules and rewards motivation as easily or feasibly towards System Engineers as towards Sales people. I do not believe that the Systems Engineers will be dissatisfied with the choice as they are more than likely aware that regardless of the rewards the sales people make, they are still earning a higher salary and would probably prefer to be in the position they are in than the position of the sales person.

References

Belcher, J (1994) ‘Gainsharing and Variable Pay: The State of the Art’, Compensation Benefits Review, 26 (3), p.50, SAGE Journals [Online]. DOI: 10.1177/088636879402600309 (Accessed: 20 February 2011).

PayScale.com (2011) Salary for People with Jobs in Network Administration/IT/Information Systems. Available from: http://www.payscale.com/research/US/People_with_Jobs_in_Network_Administration%2fIT%2fInformation_Systems/Salary (Accessed: 20 February 2011).

PayScale.com (2011) Salary Snapshot for Inside Sales Representative Jobs. Available from: http://www.payscale.com/research/US/Job=Inside_Sales_Representative/Salary (Accessed: 20 February 2011).

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