A Theory of Sales Quotas with Limited Liability and Rent Sharing
Sales quotas are a fixture of sales compensation plans and are often associated with a significant discrete bonus. This paper shows that, under certain assumptions about salesperson utility and the distribution of sales outcomes, the optimal compensation is a discrete bonus for meeting a sales quota. The results are similar when the assumption of agent risk neutrality is relaxed. The model has implications for many moral hazard problems where the agent has a liability limitation and job-specific skill. Copyright 2000 by University of Chicago Press.
References listed on IDEAS
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- Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
- Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
- Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
- Bengt Holmstrom, 1997. "Moral Hazard and Observability," Levine's Working Paper Archive 1205, David K. Levine.
- repec:sae:ilrrev:v:43:y:1990:i:3:p:89-106 is not listed on IDEAS
- Park, Eun-Soo, 1995. "Incentive Contracting under Limited Liability," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 477-490, Fall.
- Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
- Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February. Full references (including those not matched with items on IDEAS)
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