Details of the Case
A new General Manager was hired at a Schuylkill car dealership with the intention of increasing sales. Under the previous manager, the dealership had functioned using a base pay system with scaled per unit commissions. The dealership had chosen this method to replace a pure commissions system it had been using since its founding. The new base pay system was implemented in order to save money, but the owner had found that sales numbers had decreased dramatically compared to the old system.
The new General Manager spoke with the owner and made some suggestions as to what could be done to boost sales. The manager stated that the health of the dealership depends upon the efficiency and effectiveness of its sales team. He argued that the salesmen must be motivated to give their best in order to receive their best. He said that in order to achieve this, the base pay system must be changed back to the old system of pure commissions. On top of commissions he asked that the dealership honor any benefits and bonuses that he would see fit for achieving the desired results. He expressed the belief that the current system allowed for those salesmen who were satisfied with just the base pay to not work up to their potential. He stated that those that want to earn more do not see their efforts as being matched by the small per unit pays. After he finished the owner thought it over and agreed to what the General Manager had asked.
During the first sales meeting of the new month using the commissions system, the General Manager explained that the commissions would be based on profit with generous tiers. The percentage of profits received as commission increased with each level of profit and maxed out at 35% of the profit. He also placed a large board over the main sales desk with each salesman’s name on it for their sales figures to be tracked and compared.
After a month, three salesmen increased their numbers significantly compared to their past average sales. The remaining four salesmen remained at or around their normal sales figures. During the first sales meeting of the following month, the salesman who was found to be in first place was rewarded with praise in front of his colleagues and given a cash bonus of $100. The salesman in last place was ridiculed in front of his colleagues. During the month, the top salesman did not have to help the other salesmen shovel the lot after the snowfall nor did he have to help them rearrange the cars in the lot. The last place salesman was made to do all of the necessary activities that required leaving the lot such as picking up customers, food or parts.
As the months passed, three salesmen, feeling upset with continuously seeing the top salesmen receiving extra money while they had struggled on the commissions they were forced to earn, decided to quit. The salesmen who replaced them, along with the original salesman who happened to be last during the first month using the new pay system, have all been increasing their sales numbers and are giving competition to the other salesmen.
Connecting Theory with the Case
Since its founding, the Schuylkill County car dealership has, all together, used three different compensation plans. The first compensation plan was used from the time the company was founded until the previous manager was hired. This initial compensation plan was based on a performance-related pay system that rewarded “piecework”. According to this incentive pay strategy, salespeople were paid a fixed per-unit commission and their total compensation was a function of the number of cars they sold.
Under the previous manager, the company adopted a new plan, a base-pay system with scaled per unit commission. This semi-egalitarian compensation system didn’t work well because it failed to motivate employees who were satisfied with their base salary. According to Behavioral Regulation Theory (Timberlake, 1984), people have a preferred level (the bliss point) for every behavior they engage in. When a behavior is deprived below its preferred baseline level, then access to it becomes reinforcing. The incentive structure of this second compensation plan failed to equally motivate all salespeople because the base salary seemed to keep some of the employees at their equilibrium bliss points.
To solve this problem, the new general manager reverted to the old commission plan; however, he also added a scaled bonus-pay structure that is proportional to the level of profits, reaching a maximum at 35%. The general manager also used instrumental conditioning techniques to reinforce the desired behavior of selling more cars. He used the following three approaches to shape behavior:
- Positive reinforcement: The top salesperson was given a monetary reward of $100 in cash and a public praise in front of colleagues.
- Negative reinforcement: The top salesperson was relieved from doing work-related chores such as shoveling the lot after snowfall or rearranging cars in the lot.
- Positive punishment: The last-place salesperson was publicly humiliated and ridiculed.
This organizational behavior modification intervention (OB Mod) created a competitive environment that rewarded those who value competition and who have a high need for achievement. As a result of the change in the organization’s culture, employees who lacked the ability to compete with others or who didn’t possess a competitive orientation felt that their competence and self-perception was threatened and consequently quit their jobs. The three salespeople who resigned were replaced with employees who proved to be a better fit to the newly emerging organizational culture. As a result of the better fit, the company's sales increased.
The reinforcement theory was utilized quite effectively by the General Manager to alter the salesmen performances. He was able to motivate his sales force to become more competitive, and consequently increased sales of automobiles, by utilizing the three forms of reinforcement mentioned above (positive reinforcement, negative reinforcement, and positive punishment). The fact that the General Manager was able to obtain the results that he was looking for through reinforcement seems to validate the law of effect, which states that people are motivated to perform behaviors that make them feel good and less of the behaviors that make them feel bad (L3, p. 3). Both forms of reinforcement that were used, monetary reward and alleviation from extra work, are examples of rewards that would cause one to feel good. The positive punishment is an example of a consequence that would cause one to feel bad; being humiliated in front of ones coworkers is not the kind of attention one would prefer to receive. However, there is evidence that the particular form of positive punishment used was counterproductive to the desired goal. When the salesmen where punished in public this could have caused feelings of humiliation that eventually lead several of the salesmen to quit the dealership, which was counterproductive to the goal of increasing sales, because now the dealership must expend energy to hire new salesmen which takes time, and in the short term have less sales(Hellriegel & Slocum Jr., 2007).
By applying and implementing the reinforcement theory concepts, the dealership resolved the issue of declining car sales. This was done by changing the sales teams' behavior and increasing their motivation. “Reinforcement theory of motivation was proposed by BF Skinner and his associates. It states that individual’s behavior is a function of its consequences. It is based on “law of effect”, i.e, individual’s behavior with positive consequences tends to be repeated, but individual’s behavior with negative consequences tends not to be repeated.”(Management Study Guide).
By applying reinforcement theories to the sales team, the general manager motivated them to change their work behavior by working harder to boost car sales. By applying positive reinforcement, using the cash ($100) incentive and the praise for a job well done, he motivated his employees to perform better at their jobs. He also motivated the sales team with negative reinforcement by changing the sales teams pay from the base pay system back to the "old" strictly commissions system. This change in pay systems gave the sales team the incentive to work harder,and the harder they worked the more compensation they received. The old base pay system did not work very well because sales figures declined. He also posted a board where all sales team and other employees could see each sales person’s name and their sales figures for that month. In doing this, he made the sales people work harder because they did not want to be ridiculed or humiliated for being at the bottom. By applying behavior changing positive and negative reinforcement, the general manager raised sales for the dealership.
The General Manager also used positive punishment as a motivator for his employees. The employees that did not have sufficient sales for the month were required to shovel the lot, rearrange cars on the lot and run various errands, which most employees did not enjoy.
The outcome of this case is that the General Manager greatly increased car sales by implementing reinforcement theories which gave the sales team motivation and a reason to work harder. By changing the pay system, the General Manager increased the sales teams' motivation to work harder because their pay was based on commissions. The newly hired sales people provided competition for the top sales person, which motivated the top sales person to work harder at remaining on top. The sales person who was on the bottom of the board was motivated enough that he worked his way up the board and increased his sales figures. By implementing reinforcement theory on his sales team, the General Manager not only increased motivation of the sales team, he changed their work behavior and increased the car sales in his dealership.
This being said, from a certain viewpoint it is possible to argue that the attempts of the General Manager to boost car sales through application of the reinforcement theory was not in every way successful. The primary goal of the General Manager was to boost sales. From the reinforcement theory perspective as applied to this case, the General Manager attempted to do so by reinforcing behaviors that would lead to increased sales and punishing behaviors that would decrease sales of the salesmen. The primary method of reinforcement, as stated, was monetary, with higher sales being rewarded by increased pay as decided by the new pure commissions pay system, along with pay bonuses for the top salesmen. If financial gains were highly valued by the salesmen, this should theoretically increase behavior leading to increased sales amongst all salesmen. Alleviating top salesmen from undesirable tasks around the office (negative reinforcement) should also have served to increase sales if the removal of these tasks were valued by the salesmen. Lastly, posting the employee’s sales figures for comparison (possibly motivating those with a high need for achievement through positive reinforcement) and publicly humiliating the individual with the worst sales record (attempting to decrease behaviors leading to poor sales through positive punishment) should both theoretically serve to increase sales among the employees.
Where Theory Fell Short
Where could this have gone wrong in terms of successful utilization of reinforcement and punishment tactics? It can be argued that the changes implemented by the General Manager did not motivate employees at all but rather drove them out of the work place, only to be replaced by individuals with a higher intrinsic motivation to begin with. In this situation, the alterations in pay, public reprimand, and alleviation from undesirable tasks are considered the stimuli, which are intended to elicit certain responses (increasing sales). According to the reinforcement theory, a stimuli must result in increased or decreased frequency of the behavior in question in order to be considered to be reinforcing or punishing respectively (L3, p. 3,5). With the primary goal being to increase sales of the employees, these tactics were only successful for the few original salesmen who decided not to quit. These individuals increased their sales (the goal of the stimuli). The remaining salesmen did not increase sales, eventually quitting, which by definition is not successful reinforcement and punishment implementation.
These tactics were not successful in motivating the salesmen who decided to quit their jobs. Theory states that punishment should only be performed privately, with reinforcement being a public affair. Punishing in front of the other employees could, and in this case likely did, evoke an unwanted emotional response (quitting) (L3, p. 5). It is also important to consider what each individual employee values. In this case, it is possible that the employees who did not raise their sales and chose to quit have a higher need for affiliation, and the public humiliation coupled with a less intense internal desire for financial gains did not serve to motivate them to achieve the General Manager’s goals. Those with a higher need for achievement or power may have seen the monetary gains as being very desirable. In these individuals, the reinforcement tactics utilized provided a stimuli that was in fact desirable and drove them to change their behaviors. These individuals were affected as intended by the reinforcement tactics.
When evaluating the case from this standpoint, the reinforcement and punishment was only successful for some of the employees. Simply because new employees were drawn to the job does not necessarily mean the tactics were successful. Yes, sales increased, but it will not always be possible to drive out employees who under-perform in exchange for new employees who have a certain intrinsic motivation which drives them to success in one’s company. It is possible that these new employees were intrinsically motivated in such a way that they would have posted similar sales records had they worked for the dealership even before the new pay system, public praise, and reprimand tactics were put in place. In different professions, such intrinsically motivated individuals might not be readily available, and alterations in the business which drive out under-performing employees would only serve to diminish employees; the overall sales increase seen here would not be the case. The initial goal of increasing sales was achieved by the General Manager. In the case of some employees this is the result of successful reinforcement tactics, and in the case of others who left the company only to be replaced, this is not related to successful reinforcement or punishment when the nuances of the reinforcement theory are considered.
Hellriegel, D., & Slocum, J. W., Jr. (2007). Organizational behavior (11th ed.). Mason, OH: Thompson Higher Education. Retrieved from http://books.google.com/books?id=VAfMJO11rWIC
Reinforcement Theory of Motivation. Management Study Guide. n.d. Sept. 08, 2011. <http://www.managementstudyguide.com/reinforcement-theory-motivation.htm>.
Timberlake W. (1984). Behavior regulation and learned performance: Some misapprehensions and disagreements. J Exp Anal Behav. 41(3):355--375.