Chapter 13 Salesforce compensation: A review of MS/OR advances

Based on available empirical results, one cannot reject agency theory as a useful paradigm for compensation-setting, but further research is necessary to increase the level of confidence in the theory and its predictions.

Abstract

The extensive MS/OR literature on sales force compensation in marketing has attacked a great variety of problems facing sales managers, including how to set commission rates, whether to delegate pricing authority to a sales force, what mix of salary and incentive compensation to provide to the sales force, whether or not to offer a menu of compensation plans, and how to elicit valuable information from salespeople about their utility functions and sales response functions. In the case of theoretical models, some predictions have been tested statistically, but these tests have been incomplete and, in some cases, inconclusive. Based on available empirical results, one cannot reject agency theory as a useful paradigm for compensation-setting, but further research is necessary to increase the level of confidence in the theory and its predictions. On the decision support system (DSS) front, few diagnostics have been presented for the models described in the literature, although those presented suggest the usefulness of the approach as well.