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Salesforce Compensation: Theory and Managerial Implications

Author

Listed:
  • Anne T. Coughlan

    (Northwestern University)

  • Subrata K. Sen

    (Yale School of Management)

Abstract

This paper discusses recent advances in the study of salesforce motivation and compensation. Special emphasis is given to quantitative approaches from the economics, finance, and marketing literatures. The paper summarizes the findings in this analytical work in the context of some examples of compensation practice in order to illustrate the usefulness of the paradigm for the evaluation and setting of compensation systems. We consider some major issues in setting compensation, such as the firm's own objective; the salesperson's objective; and the nature of the sales response function. Variations in these factors imply significant variation in optimal compensation policy, where “optimal” takes into account the components in the plan, the parameter levels of the components, and whether or not a menu of such plans should be made available to the salesforce. By highlighting the results in the literature in light of some relevant compensation examples, we show the applicability of theory to the practical concerns of salesforce management. We close with a summary of these insights and directions for future research in the area.

Suggested Citation

  • Anne T. Coughlan & Subrata K. Sen, 1989. "Salesforce Compensation: Theory and Managerial Implications," Marketing Science, INFORMS, vol. 8(4), pages 324-342.
    • Handle: RePEc:inm:ormksc:v:8:y:1989:i:4:p:324-342
    DOI: 10.1287/mksc.8.4.324
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    Cited by:

    1. Zheyin (Jane) Gu & Yunchuan Liu, 2018. "Why would a big retailer refuse to collaborate on manufacturer SPIFF programs?," Quantitative Marketing and Economics (QME), Springer, vol. 16(4), pages 441-472, December.
    2. David B. Balkin & Jérôme Côté & Michel Tremblay, 1998. "Explaining Sales Pay Strategy Using Agency, Transaction Cost and Resource Dependence Theories," CIRANO Working Papers 98s-28, CIRANO.
    3. 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.
    4. Soroush Saghafian & Xiuli Chao, 2014. "The impact of operational decisions on the design of salesforce incentives," Naval Research Logistics (NRL), John Wiley & Sons, vol. 61(4), pages 320-340, June.
    5. Sanjog Misra & Anne Coughlan & Chakravarthi Narasimhan, 2005. "Salesforce Compensation: An Analytical and Empirical Examination of the Agency Theoretic Approach," Quantitative Marketing and Economics (QME), Springer, vol. 3(1), pages 5-39, January.
    6. Henderson, James & Leleux, Benoit & White, Ian, 2006. "Service-for-equity arrangements: Untangling motives and conflicts," Journal of Business Venturing, Elsevier, vol. 21(6), pages 886-909, November.
    7. Noah Lim & Sung H. Ham, 2014. "Relationship Organization and Price Delegation: An Experimental Study," Management Science, INFORMS, vol. 60(3), pages 586-605, March.
    8. Rouziès, Dominique & Onyemah, Vincent & Panagopoulos, Nikolaos, 2008. "How HRM control affects boundary-spanning employees’ behavioural strategies and satisfaction : The moderating impact of cultural performance orientation," HEC Research Papers Series 895, HEC Paris.
    9. Tat Y. Chan & Jia Li & Lamar Pierce, 2014. "Learning from Peers: Knowledge Transfer and Sales Force Productivity Growth," Marketing Science, INFORMS, vol. 33(4), pages 463-484, July.
    10. Oyer, Paul, 2000. "A Theory of Sales Quotas with Limited Liability and Rent Sharing," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 405-426, July.
    11. Fangruo Chen, 2000. "Sales-Force Incentives and Inventory Management," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 186-202, February.
    12. Ayc{s}e Kocab{i}y{i}kou{g}lu & Ioana Popescu, 2007. "Managerial Motivation Dynamics and Incentives," Management Science, INFORMS, vol. 53(5), pages 834-848, May.
    13. Albers, Sonke, 1996. "Optimization models for salesforce compensation," European Journal of Operational Research, Elsevier, vol. 89(1), pages 1-17, February.
    14. Jeffrey D. Shulman & Zheyin (Jane) Gu, 2024. "Making Inclusive Product Design a Reality: How Company Culture and Research Bias Impact Investment," Marketing Science, INFORMS, vol. 43(1), pages 73-91, January.
    15. Selcuk, Cemil & Gokpinar, Bilal, 2022. "Incentivizing flexible workers in the gig economy: The case of ride-hailing," Cardiff Economics Working Papers E2022/11, Cardiff University, Cardiff Business School, Economics Section.
    16. Abou Nabout, Nadia & Skiera, Bernd & Stepanchuk, Tanja & Gerstmeier, Eva, 2012. "An analysis of the profitability of fee-based compensation plans for search engine marketing," International Journal of Research in Marketing, Elsevier, vol. 29(1), pages 68-80.
    17. Fabio Caldieraro & Anne T. Coughlan, 2009. "Optimal Sales Force Diversification and Group Incentive Payments," Marketing Science, INFORMS, vol. 28(6), pages 1009-1026, 11-12.
    18. Birendra K. Mishra & Ashutosh Prasad, 2004. "Centralized Pricing Versus Delegating Pricing to the Salesforce Under Information Asymmetry," Marketing Science, INFORMS, vol. 23(1), pages 21-27, January.
    19. Fabio Caldieraro & Anne T. Coughlan, 2007. "Spiffed-Up Channels: The Role of Spiffs in Hierarchical Selling Organizations," Marketing Science, INFORMS, vol. 26(1), pages 31-51, 01-02.
    20. Christian Pfeil & Thorsten Posselt & Nils Maschke, 2008. "Incentives for sales agents after the advent of the internet," Marketing Letters, Springer, vol. 19(1), pages 51-63, March.
    21. Tat Y. Chan & Jia Li & Lamar Pierce, 2014. "Compensation and Peer Effects in Competing Sales Teams," Management Science, INFORMS, vol. 60(8), pages 1965-1984, August.
    22. Robert Mayberry & James Sanders Boles & Naveen Donthu, 2018. "An escalation of commitment perspective on allocation-of-effort decisions in professional selling," Journal of the Academy of Marketing Science, Springer, vol. 46(5), pages 879-894, September.
    23. Mohammad E. Nikoofal & Mehmet Gümüş, 2018. "Quality at the Source or at the End? Managing Supplier Quality Under Information Asymmetry," Manufacturing & Service Operations Management, INFORMS, vol. 20(3), pages 498-516, July.
    24. Anil Gaba & Ajay Kalra, 1999. "Risk Behavior in Response to Quotas and Contests," Marketing Science, INFORMS, vol. 18(3), pages 417-434.

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