Dynamic Incentives in Sales Force Compensation

Abstract

To inform the design of sales force compensation plans when carryover effects exist, we propose a dynamic model where these effects, together with present selling efforts, drive sales. Our results show that a salesperson with low risk aversion exerts effort to decrease attrition from existing business, whereas a salesperson with high risk aversion does not. Why? Because carryover increases not only expected sales but also sales uncertainty. Consequently, the manager should incentivize the high risk-aversion salesperson with a concave compensation plan to counterbalance suboptimal customer attrition, and the low risk-aversion salesperson with a convex compensation plan that limits coasting on past efforts. We generalize our results to when the firm employs multiple salespeople, and when advertising and personal selling are budgeted together.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 43 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.