The Impact of Compensation Structure on Salesperson Perceptions and Behaviors: Insights From the Sales Literature

Compensation is one of the most effective methods used to align and motivate salespeople to accomplish sales and organizational objectives. For this reason, sales researchers have made considerable strides in understanding the impact that compensation structure has on salespeople and salesforce performance. In this article, we examine the theoretical foundations of the sales compensation literature. We then perform an extensive review of this literature to identify the perceptual and behavioral outcomes associated with incentive- and salary-based compensation. Finally, the limitations of the sales compensation research are identified, and future studies are proposed.

The Effects of Quota Frequency: Sales Performance and Product Focus

This study investigates the comprehensive and multidimensional effects of quota (goal) frequency on sales force performance. The study provides a theory of salespeople’s behavior—aggregate effort and the product-type focus—in response to the temporal length of a sales quota cycle. The theory includes many realistic elements, such as salespeople’s multidimensional effort, heterogeneity in ability, product focus, and forward-looking behavior. We test the theory through a field experiment, varying the sales compensation structure of a major retail chain in Sweden. Consistent with the developed theory, shifting to a temporally frequent quota structure leads to an increase in sales performance for low-performing salespeople by preventing them from giving up in later periods within a quota-evaluation cycle, but to a decrease in sales performance for high-performing salespeople. With quotas set over short time horizons, the high-performing salespeople focus mainly on low-ticket products, resulting in a decrease in both sales volume and the sale of high-ticket products, thus reducing the firm’s profits. This paper was accepted by Eric Anderson, marketing.

Sales Force Compensation Design for Two-Sided Market Platforms

The authors study the use of sales agents for network mobilization in a two-sided market platform that connects buyers and sellers, and they examine how the presence of direct and indirect network effects influences the design of the sales compensation plan. They employ a principal–agent model in which the firm tasks sales agents to mobilize the side of the platform that it monetizes (i.e., sellers). Specifically, the presence of network effects alters the agency relationship between the firm and the sales agent, requiring the platform firm to alter the compensation design, and the nature of the alteration depends on whether the network effects are direct or indirect and positive or negative. The authors first show how the agent’s compensation plan should account for different types of network effects. They then establish that when the platform firm compensates the agent solely on the basis of network mobilization on the side cultivated by the agent (sellers), as intuition would suggest, it will not fully capitalize on the advantage of positive network effects; that is, profit can be lower under stronger network effects. To overcome this limitation, the platform should link the agent’s pay to a second metric, specifically, network mobilization on the buyer side, even though the agent is not assigned to that side. This design induces a positive relation between the strength of network effects and profit. This research underlines the complexity and richness of network effects and provides managers with new insights regarding the design of sales agents’ compensation plans for platforms.

Managerial Delegation Contracts, “Green” R&D and Emissions Taxation

We introduce an explicit environmental incentive into a managerial compensation contract in the context of a Cournot duopoly with pollution externalities under an emissions tax regime. We show that, depending on the effectiveness of “green” R&D, compared to a standard sales compensation contract, the explicit environmental focused contract results in more abatement. As a consequence, the regulator sets a lower emissions tax, and social welfare is higher. Moreover, in general, firm owners earn higher profits when adopting the environmental delegation contract.

How strategy execution maps guided Cisco System’s Sales Incentive Compensation plan

Purpose This article describes an approach to strategy execution using lessons learned from improvement efforts to the sales incentive compensation (SIC) business processes and IT systems in Cisco Systems. Design/methodology/approach This case outlines an alternative approach to strategy execution–a COAR strategy map methodology– illustrated with lessons learned from efforts to improve the sales incentive compensation business processes and IT systems in Cisco Systems.” Findings By following a structured and systematic process, organizations can implement a process for strategy execution that is effective and repeatable. In executing strategy, stay focused on how to translate the decisions taken while defining business strategy into operations. As business strategy changes, elements of the strategy execution must change as well. Research limitations/implications This case is primarily a guide to strategy execution and is not meant to be a prescription for a cutting edge sales compensation plan. Practical implications Although the examples used in this article relate to SIC business processes, the lessons learned can be applied to strategy execution in general. Originality/value It is this “peek forward” into a virtual execution setting, and the opportunity to use it as a scenario-like tool to test alternatives, that increases the likelihood that managers will devise a stable and executable strategy.