Salesperson compensation contract design based on multi‐agent principal agent model

Abstract

Purpose

The effective and efficient motivation of the sales personnel affects the sales of a firm directly. The aim of this paper is to study the incentive effects of different compensation contracts under the framework of multi‐agent principal agent model, and it finds that the optimal contract is not the one that ties one salesperson's compensation to his own performance, but the one that ties his compensation to all the salespersons' performance. Factors that influence the incentive degree are also discussed. The purpose of this article is to design a reasonable incentive contract for salespersons where there are competitions between them.

Design/methodology/approach

A multi‐agent model where the efforts of one agent harm the performance of the other agent is established.

Findings

The optimal compensation of a salesperson is always composed of two parts: an incentive for an agent to improve his own performance and a disincentive for the agent to harm his colleague's performance, provided that there is a competition relationship between the two agents.

Research limitations/implications

This model applies only to the rewards incentive of multi‐agents with competitive relationships.

Practical implications

The conclusion could be used anywhere when there are two agents with one's behavior harming the other's performance.

Originality/value

A multi‐agent model where the efforts of one agent harm the performance of the other agent is established to study the compensation design problems for agents.

Citation

Liu, H. and Liu, S. (2013), "Salesperson compensation contract design based on multi‐agent principal agent model", Nankai Business Review International, Vol. 4 No. 1, pp. 78-86. https://doi.org/10.1108/20408741311303896