Abstract
Sales force compensation research has received much attention over the last few years. One of the major problems being addressed is the design of optimal sales force compensation plan structures, and especially determining the relative importance to be given to salary versus incentive pay (see for instance John and Weitz 1989). Starting with the pioneering article by Basu, Lal, Srinivasan, and Staelin (1985), agency theory has become the leading paradigm for analyzing this complex management issue. Unlike previous sales force compensation work, agency theory has allowed researchers to take risky situations into account. Because of a lack of information, or of unforeseen erratic events, selling situations are typically stochastic. Including risk into the sales force compensation problem was therefore warranted. According to the agency theoretic framework, management (the principal) devises an expected profit maximizing compensation plan, based on some knowledge of (1) salespersons’ utilities, (2) salespersons’ attitudes toward risk, and (3) the (stochastic) sales response functions to a salesperson’s selling efforts. As a result, salespeople (the agents) make decisions on their effort level and allocations, given their understanding of (1) the compensation plan imposed by management and (2) the (stochastic) territory sales response functions to their own selling efforts.
Access provided by Autonomous University of Puebla. Download to read the full chapter text
Chapter PDF
Similar content being viewed by others
Keywords
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
References
Albers, Sonke. 1996. “Optimization Models for Salesforce Compensation,” European Journal of Operational Research, 89: 1–17.
Basu, Amiya K., Rajiv Lal, V. Srinivasan, and Richard Staekin.1985. “Salesforce Compensation Plans: An Agency Theoretic Perspective,” Marketing Science, 4 (4): 267–291.
Coughlan, Anne T..1993. “Salesforce Compensation: A Review of MS/OR Advances.” In Handbooks in OR & MS, Vol. 5. Eds. Joshua Eliashberg and Gary L. Lilien. Amsterdam: Elsevier Science Publishers, 611–651.
John, George and Barton A. Weitz. 1989."Salesforce Compensation: An Empirical Investigation of Factors Related to Use of Salary versus Incentive Compensation,” Journal of Marketing Research, 26 (February): 1–14.
Luce, R.D. and H. Raiffa. 1957. Games and Decisions. New York: John Wiley & Sons, Inc., 278–286.
Wilson, Dale T. and Peter D. Bennett (1986), Motivating the Field Salesforce through the Compensation Plan. Working series No. 8. 1986. Institute for the Study of Business Market.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2015 Academy of Marketing Science
About this paper
Cite this paper
Darmon, R.Y. (2015). A Decision Theory Approach to the Determination of Optimal Compensation Plan Structures. In: Manrai, A., Meadow, H. (eds) Global Perspectives in Marketing for the 21st Century. Developments in Marketing Science: Proceedings of the Academy of Marketing Science. Springer, Cham. https://doi.org/10.1007/978-3-319-17356-6_139
Download citation
DOI: https://doi.org/10.1007/978-3-319-17356-6_139
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-17355-9
Online ISBN: 978-3-319-17356-6
eBook Packages: Business and EconomicsBusiness and Management (R0)