Research On Salesperson Compensation Plan: An Agency Theoretic Perspective

Since 1960s, oversea experts of the marketing science and human resource managementhave made considerable progresses in the explanation and theoretic analysis of varioussalesforce compensation contract forms by introducing three major factors: confliction of theobjectives of the firm, uncertainties of sales response function, and asymmetric information.Because salespeople usually possess better knowledge about their own territories'sales than the central management, firms often improve their production plans to achieve maximizinglong-term profit objective and to enhance its competitive power by using the informationfrom salespeople. Unfortunately, under the traditional compensation plan, the quota submittedby saleforce is often much larger than market's demand, thus generally leading to the growthof inventory. In order to help firm realize its long-term sustainable development strategy, anew compensation, which can not only incite salesforce but also induce them to render theirinformation about actual demand, is needed.This paper makes a theoretic analysis on the compensation, using agency theoryapproach, develops a category of nonlinear contract models which punish salespersons fortheir deviations of the output from the quota, analyzes the nonlinear model in several differentsituations, yielding several conclusions which have instructive values for practical operation.The concrete presentation is arranged as below:In chapter 2, after pointing out the defect of the traditional compensation plans that theyoften failed to induce the salesmen to accurately report the sale prospect, a compensation planunder which salespersons will select their actual quota without the guide of planners'reference quota and works hard to fulfill it, is developed. Its validityis argued.In chapter 3, the model mentioned in chapter 2 is extended into the multi-products salesituation. The relationship among commission rate, product punishment coefficient, andproduct sale relativity is derived, the commission rates of two products under different salesituations are discussed, and the impact on commission rate of four factors: base sale level,validity coefficient, interaction coefficient, and disutility coefficient, is described. The designof product commission rates of prime product and byproduct when the firm takes both short /long term profits into account is also discussed.In chapter 4, the defect of Rao's menus of linear plans is analyzed. And then a morerobust nonlinear contract is developed, and its nature is analyzed in the two categories ofselling environments with asymmetric information, yielding a conclusion that the piecewiselinear commission plan can improve the profitability of the firm that applied the uniformcommission rate plan to the salesforce.In chapter 5, an expedient measure is described when both firm and salesforce areuncertain about parameters of individual territory. The multi-period problem of setting a salesquota for a salesperson is discussed .How the quota should be related to territory, salesperson,and incentive plan is addressed. How quotas can be systematically utilized not only tomotivate salespersons but also to generate valuable information on sales characteristics of anunknown territorybyapplying the Bayesian adaptive control methodologyis narrated.In chapter 6, a summaryis made and directions for future research are discussed.