Pay Satisfaction and Sales Force Turnover: The Impact of Different Facets of Pay on Pay Satisfaction and Its Implications for Sales Force Management

The costs associated with sales force turnover are sizable - recruiting and training new salespeople as well as the opportunity costs that result when a territory is left open and revenue is lost. Sales force turnover rates vary from industry to industry and firm to firm, but research finds average industry sales force turnover rates as high as 53%, annually (Dartnell's Survey of Sales Force Compensation, 1994-95). Although some turnover is beneficial (functional turnover, i.e., the departure of low performing salespeople), the loss of productive employees is an expensive proposition, up to $40 thousand per salesperson (McNeilly and Goldsmith, 1991). The existence of functional turnover places even more importance on the effective management of sales force turnover. Since poor performers will typically choose to quit more often than better performers (Bycio et al., 1990; McEvoy and Cascio, 1987), this means that employee turnover frequently has positive consequences for companies because they can attempt to replace leavers who were performing poorly with average or strong performers (Hollenbeck and Williams, 1986). What is needed is improved insight into the criteria used by salespeople in their decisions to leave their current positions. Of all the many properties that characterize work in formal organizations, pay is one of the most important (Rice et al., 1990). Pay has been found to influence significant organizational behavior variables, including turnover (Heneman, 1985). Research by Ford, Walker, and Churchill (1977) supported the long held conventional wisdom in sales management: salespeople are motivated by money. What was surprising was that money does not appear to lose its attractiveness as salespeople reach the later stages of their careers. Chonko et al. (1992b) found that pay was the most important motivator of salespeople. The pay package "is the basic motivator, whereas other financial incentives, such as bonuses and contests, operate only to induce effort over and above that produced by the basic plan in certain circumstances" (Walker et al., 1977: 157). While pay is not the only motivator, it still remains an important (if not most important) component of sales force management as evidenced by the Chonko et al. (1992b) survey. What has received little attention in the sales literature is how different aspects of a salesperson's pay affect his/her satisfaction with that pay. The primary objective of this study is to investigate how pay type (straight salary, commission only, and salary plus commission), pay level, and internal and external perceptions of pay equity affect salespersons' satisfaction with pay. In addition, the efficacy of salespersons' satisfaction with pay as a predictor of intent to turnover is also investigated. Literature Review Pay Level and Pay Satisfaction The importance of pay to salespeople has been often discussed, but not well documented (Chonko et al., 1992a). Nevertheless, compensation has been a primary tool used to motivate salespeople (Churchill and Pecotich, 1982). "Any discussion with sales executives would bring forth a consensus that compensation is the most important element in a program for the management and motivation of a field sales force" (Stein-brink 1978:111). Level of pay has been found to be consistently, and not surprisingly, the major determinant of pay satisfaction (Gomez-Mejia and Balkin, 1987; Huber et al., 1992; Motowidlo, 1983; Schwab and Wallace, 1974). Hypothesis 1: A salesperson's level of pay and satisfaction with that pay will be positively related. When investigated with perceptual measures of pay (e.g., internal and external perceptions of pay equity), the relationship between pay level and pay satisfaction may not be so straight forward. As Lawler (1971) points out, a person's satisfaction with his/her level of pay depends not only upon the absolute level of income, but also upon what the individual perceives to be a fair level. …