Business Commons^™

Salesforce Compensation Plans Incorporating Multidimensional Sales Effort And Salesperson Efficiency, Sunil Erevelles, Indranil Dutta, Carolyn Galantine

Carolyn A Galantine CPA., PhD

Sales force compensation models are often constrained by the assumption that salesperson effort is unidimensional. Some models have extended this scenario to multiple products but retain the "single-effort" assumption. In addition, salesperson efficiency has been ignored. As selling is clearly multidimensional, we present a formulation of an agency model (MIPAM) that incorporates multidimensional sales effort as well as salesperson efficiency. Using the model, we also show that under certain assumptions, we can build the second-order condition of the agent's maximization into the principal-agent problem, instead of assuming it, as has been done in the past.