To What Extent Do Commissions and Bonuses Impact the Performance of Car Salesmen?

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H1: Commissions and bonuses negatively impact the performance of car salesmen.

For this test, our null hypothesis states that commissions and bonuses have no impact on performance, whereas the alternative hypothesis posits that the two have an impact on motivation.

In the dealerships studied, bonuses cannot exist independently of commission, thus it would be difficult to say that one incentive is more effective in increasing performance than the other. However, it is possible to test the effects of commission and bonuses as an “incentive package” against commission alone. This is particularly interesting as the literature does not explore whether the combination of different incentive schemes is more efficient than only one incentive on its own. Accordingly, the following hypothesis is proposed:

H2: The combination of commission and bonuses has a bigger impact on salesmen’s performance compared to commission only

In this experiment, the null hypothesis states that commission and bonuses combined have the same effect on performance as commission only. On the other hand, the alternative hypothesis advances that commission plus bonuses have a bigger impact on performance compared to commission only. In order to test these two hypotheses, data will be reviewed and the appropriate methodology selected.

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Methodology

Design

A sample of 54 car salesmen from 19 different car dealerships in the Bath and Bristol area, including Kia, Mercedes, Mini, and Skoda, participated in a survey of 14 questions (see appendix). Given the scope and time frame of the study, surveys are seen as the most appropriate method to establish trends using a large sample size. If a qualitative approach was adopted, it would be challenging to draw well-defined conclusions for our topic as multiple interpretations could be made from conflicting perspectives. The sample consists of 68.52% males and 31.48% females. Moreover, the majority of respondents (61.11%) had more than five years of experience, whilst 24.07% had between three and five years and 14.81% had less than three years.

In this study, commission and bonuses are categorised in three different levels. For commission, the levels are from 0 to 10%, 10 to 15% and above 15%. For the bonus scheme, we cannot categorise these in numerical intervals as different types of bonuses exist (e.g. target-based or model-based). Therefore, this treatment is split between “low”, “medium” and “high” in terms of attractiveness. The analysis on data is performed using both Excel and SPSS.

Quantitative Analysis

In order to test the first hypothesis, we separate this into three parts following Bonner and Sprinkle’s (2002) conceptual framework on the relationship between pay and performance. We first analyse whether incentives have an impact on motivation by asking respondents to indicate their level of motivation given varying commission rates and bonuses. From their responses, a two-way ANOVA with replication is performed with three different levels of compensation for the two schemes. Then, in order to determine which of these two incentive schemes lead to higher levels of motivation, a Mann-Whitney test is used. For this, respondents were asked to rank each incentive scheme on a scale from 1 (not motivated) to 4 (very motivated) in terms of the impact on their motivation. As a final test for H1, we evaluate whether motivation has an effect on performance. In this test, we compare the motivational levels with respondent's’ performance, measured in sales volumes achieved in the last quarter. This is tested using a one-way ANOVA. After establishing the link between motivation and performance, the effectiveness of commissions and bonuses can be tested and compared.

In order to address the second hypothesis H2, an independent population t-test is performed to investigate whether commissions alone or combined with bonuses result in higher performance levels. In this test, we compare the sales volume achieved when both commission and bonuses are implemented against when only commission is used.

For all of the tests above, a significance level of 5% is used, and a test-statistic is compared to the corresponding critical value. If the test-statistic is greater than the critical value, the null hypothesis can be rejected.

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Analysis and results

Hypothesis 1: Effect of commission and bonuses on performance

- The relationship between incentive and motivation

Our first hypothesis stipulates that commission and bonuses have a negative effect on motivation. The results obtained from the two-way ANOVA with replication are shown in Table 3.[pic 1]

In the test above, we examine three types of effects. Firstly, the “row effect” determines whether commission level has an effect on motivation. Secondly, the “columns effect” tests if bonuses have an impact on motivation. Lastly, the interaction effect evaluates if one factor affects the motivation of the other factor. Several conclusions can be drawn from this analysis. Firstly, as our F statistic of 31.813 is higher than our critical value of 3.024, there is enough evidence to support a row effect, which means that commissions influence motivation. Then, given that 16.475 > 3.871, it can be established that a column effect exists. In other words, bonuses have an impact on motivation. Furthermore, from the descriptive statistics, we can see that for both incentive schemes the level of motivation rises as the amount of the incentive increases. Lastly, an interaction effect exists, as 2.615 > 2.391, which means that the combination of the two incentives has an impact on motivation. Given that both have a positive correlation with motivation, it can be concluded that this relationship is also positive. Thus, a positive relationship between the two compensation schemes and motivation can be determined.

B. Effect of commission against bonuses on motivation

With a positive relationship observed between bonuses and commission and motivation, we then measure the extent to which each incentive impact motivation independently. By conducting a Mann-Whitney test, we obtain the following results. [pic 2]

This Mann-Whitney