Abstract
This paper presents a theory of multi-period salesforce compensation in which a firm experiences a production learning effect. Firm management uses the salesforce compensation plan to promote current period sales (and production) in order to lower future period production costs. The firm management (principal)-salesperson (agent) relationship is modeled as an agency relationship. The model is a two-period extension of the Basu, Lal, Srinivasan and Staelin (1985) one-period agency model of salesforce compensation. We demonstrate that (relative to the results for the one-period model) firm management should, in the first period, decrease the salary portion of the compensation plan and increase the commission rate (as a percentage of sales). Such changes in the compensation plan motivate the salesperson to increase first period sales effort. The firm is able to increase discounted two-period expected profit by considering production dynamics in this compensation plan. We discuss managerial implications of our model.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 179-188 |
| Number of pages | 10 |
| Journal | International Journal of Research in Marketing |
| Volume | 7 |
| Issue number | 2-3 |
| DOIs | |
| State | Published - Dec 1990 |
All Science Journal Classification (ASJC) codes
- Marketing