IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v26y2024i6p2274-2283.html
   My bibliography  Save this article

Optimal Salesforce Compensation with General Demand and Operational Considerations

Author

Listed:
  • Haotian Song

    (School of Management, Zhejiang University, Hangzhou 310058, China)

  • Guoming Lai

    (McCombs School of Business, The University of Texas, Austin, Texas 78712)

  • Wenqiang Xiao

    (Stern School of Business, New York University, New York, New York 10012)

Abstract

Problem definition : We investigate the optimal salesforce compensation scheme in the context of private information and unobservable actions, considering common operational factors encountered in practice, including inventory costs, contractible versus censored demand information, and controlled versus delegated ordering. Methodology/results : Based on an agency model with general demand and cost functions, we derive optimality conditions for implementable contracts that can achieve the second-best outcome in all scenarios. The contracts are in the forms of a menu with linear compensation for demand or sales, incorporating inventory costs. Moreover, the contracts feature adjustments in compensation corresponding to the ordering level if it is delegated. Managerial implications : Our study reveals that, under reasonably mild conditions, optimal salesforce contracts can still maintain relatively simple forms, even when confronted with common operational factors and generalized demand and cost functions. However, the contracts must be tailored to suit the operational settings. Intriguingly, neither the loss of demand information nor the delegation of inventory decisions would compromise system efficiency at optimum.

Suggested Citation

  • Haotian Song & Guoming Lai & Wenqiang Xiao, 2024. "Optimal Salesforce Compensation with General Demand and Operational Considerations," Manufacturing & Service Operations Management, INFORMS, vol. 26(6), pages 2274-2283, November.
    • Handle: RePEc:inm:ormsom:v:26:y:2024:i:6:p:2274-2283
    DOI: 10.1287/msom.2022.0400
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/msom.2022.0400
    Download Restriction: no
    File URL: https://libkey.io/10.1287/msom.2022.0400?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:26:y:2024:i:6:p:2274-2283. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.