Compensation Plans for Single- and Multi-Product Salesforces: An Application of the Holmstrom-Milgrom Model

Compensation Plans for Single- and Multi-Product Salesforces: An Application of the Holmstrom-Milgrom Model

The agency theory approach to understanding salesforce compensation plans is modified to incorporate the intratemporal nature of the salesperson's effort-rate decision, i.e., the decision about the effort-rate at any given point in time potentially depends upon the sales performance up to that...

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Veröffentlicht in:Management Science. - Institute for Operations Research and the Management Sciences, 1954. - 39(1993), 7, Seite 777-793
1. Verfasser: Lal, Rajiv (VerfasserIn)
Weitere Verfasser: Srinivasan, V.
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 1993
Zugriff auf das übergeordnete Werk:Management Science
Schlagworte:Salesforce Compensation Agency Theory Salesforce Management Business Economics
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520 |a The agency theory approach to understanding salesforce compensation plans is modified to incorporate the intratemporal nature of the salesperson's effort-rate decision, i.e., the decision about the effort-rate at any given point in time potentially depends upon the sales performance up to that point in time in the accounting period. Under the assumptions considered in this paper, Holmstrom and Milgrom (1987) have shown that the optimal compensation plan is linear in total sales over the accounting period. The comparative statics results obtained here corroborate most of the corresponding results in the salesforce compensation literature; moreover, we derive many additional results not available in the literature. It is demonstrated that the commission income as a fraction of total compensation goes up with an increase in the effectiveness of the sales-effort or an increase in base sales. On the other hand, the salary component of the total compensation goes up with increases in uncertainty, absolute risk aversion, marginal cost of production, perceived cost of effort, and/or alternative job opportunities for the salesperson. We provide a discussion of different selling situations where our results may be more or less applicable. An examination of empirical studies already available in the literature reveals support for our findings regarding the relative emphasis of salary and incentive pay in the compensation plan. We also extend the agency theory approach to compare commission rates across products for a multiproduct salesperson. Here it is shown that commission rates are higher for products with higher sales-effort effectiveness, lower levels of uncertainty, and/or lower marginal costs. 
540 |a Copyright 1993 The Institute of Management Sciences 
650 4 |a Salesforce Compensation 
650 4 |a Agency Theory 
650 4 |a Salesforce Management 
650 4 |a Business  |x Accountancy  |x Bookkeeping  |x Accounting records  |x Accounting periods 
650 4 |a Business  |x Business administration  |x Human resources  |x Employee compensation  |x Sales commissions 
650 4 |a Business  |x Business administration  |x Business management  |x Sales management  |x Sales distribution 
650 4 |a Business  |x Business administration  |x Human resources  |x Employee compensation  |x Salary 
650 4 |a Economics  |x Microeconomics  |x Economic costs and benefits  |x Economic costs  |x Marginal costs 
650 4 |a Business  |x Business administration  |x Corporate communications  |x External corporate communications  |x Marketing  |x Marketing management  |x Marketing functions  |x Sales presentations 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial analysis  |x Risk management  |x Risk aversion 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Expected utility 
650 4 |a Economics  |x Microeconomics  |x Economic costs and benefits  |x Economic costs  |x Cost of sales 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Utility functions 
655 4 |a research-article 
700 1 |a Srinivasan, V.  |e verfasserin  |4 aut 
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