Advanced Search
MyIDEAS: Login to save this article or follow this journal

Compensating Heterogeneous Salesforces: Some Explicit Solutions

Contents:

Author Info

  • Ram C. Rao

    (The University of Texas at Dallas)

Registered author(s):

    Abstract

    This paper considers the question of how a sales manager should design the optimal compensation scheme for his salesforce when it consists of salespersons of varying selling skills, i.e., when the salesforce is heterogeneous. The manager's problem is to reward the salespersons based on observable, uncertain sales achieved by the salespersons. Under the assumption that both the manager and the salespersons are risk neutral, the optimal compensation scheme is derived. It consists of the manager offering a menu of plans, consisting of a quota, a payment for meeting quota, and a constant commission rate for sales above or below quota. Such schemes using constant commission rates are also called menus of linear plans. Salespersons choose the quota which best suits them, achieve sales, and are then rewarded based on their actual performance. This scheme, variants of which are often observed in practice, is shown to be optimal for sales environments characterized by commonly encountered sales response functions, and a large class of frequency distributions of selling skills in the salesforce. The problem is solved using the methods of principal-agent models. The key differences in managing homogeneous and heterogeneous salesforces are highlighted. Finally, the paper discusses the issues involved in practically implementing the optimal compensation scheme.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://dx.doi.org/10.1287/mksc.9.4.319
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 9 (1990)
    Issue (Month): 4 ()
    Pages: 319-341

    as in new window
    Handle: RePEc:inm:ormksc:v:9:y:1990:i:4:p:319-341

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Email:
    Web page: http://www.informs.org/
    More information through EDIRC

    Related research

    Keywords: salesforce compensation; selling skill; heterogeneous salespersons; menu of linear plans; principal-agent models;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Pushkar Murthy & Murali Mantrala, 2005. "Allocating a Promotion Budget between Advertising and Sales Contest Prizes: An Integrated Marketing Communications Perspective," Marketing Letters, Springer, vol. 16(1), pages 19-35, January.
    2. Banker, Rajiv D. & Lee, Seok-Young & Potter, Gordon, 1996. "A field study of the impact of a performance-based incentive plan," Journal of Accounting and Economics, Elsevier, vol. 21(2), pages 195-226, April.
    3. Albers, Sonke, 1996. "Optimization models for salesforce compensation," European Journal of Operational Research, Elsevier, vol. 89(1), pages 1-17, February.
    4. Yang, Jian & Qi, Xiangtong, 2009. "On the design of coordinating contracts," International Journal of Production Economics, Elsevier, vol. 122(2), pages 581-594, December.
    5. Banker, Rajiv D. & Lee, S.-Y.Seok-Young & Potter, Gordon & Srinivasan, Dhinu, 2000. "An empirical analysis of continuing improvements following the implementation of a performance-based compensation plan," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 315-350, December.
    6. Marty Stuebs & Li Sun, 2010. "Business Reputation and Labor Efficiency, Productivity, and Cost," Journal of Business Ethics, Springer, vol. 96(2), pages 265-283, October.
    7. Sanjog Misra & Anne Coughlan & Chakravarthi Narasimhan, 2005. "Salesforce Compensation: An Analytical and Empirical Examination of the Agency Theoretic Approach," Quantitative Marketing and Economics, Springer, vol. 3(1), pages 5-39, January.
    8. Murali Mantrala & Sönke Albers & Fabio Caldieraro & Ove Jensen & Kissan Joseph & Manfred Krafft & Chakravarthi Narasimhan & Srinath Gopalakrishna & Andris Zoltners & Rajiv Lal & Leonard Lodish, 2010. "Sales force modeling: State of the field and research agenda," Marketing Letters, Springer, vol. 21(3), pages 255-272, September.
    9. Lee, Chung-Yee & Yang, Ruina, 2013. "Compensation plan for competing salespersons under asymmetric information," European Journal of Operational Research, Elsevier, vol. 227(3), pages 570-580.
    10. Lee, Dong Hwan, 1998. "The Moderating Effect of Salesperson Reward Orientation on the Relative Effectiveness of Alternative Compensation Plans," Journal of Business Research, Elsevier, vol. 43(2), pages 65-77, October.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:9:y:1990:i:4:p:319-341. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.