The Impact of Incentive Compensation on the Salesperson's Work Habits: An Economic Model

Darmon, René Y.
May 1987
Journal of Personal Selling & Sales Management;May87, Vol. 7 Issue 1, p21
Academic Journal
This article proposes an application of some basic concepts of economic theory to the problem of sales force response to financial incentive variations. The objective is to associate various salespersons' behavioral patterns with respect to financial incentives with some easily observable measures of salespeople's outputs. A salesperson is expected to maximize utility given a selling time constraint. Utility is defined as the most satisfying allocation a salesperson can make of his or her time and effort between "work" and "leisure." In the case of a multi-product firm, a variation of the remuneration level is defined as the variation of the remuneration that a salesperson could experience if he or she sold exactly the same quantity of each product line before and after the change of the compensation scheme. A time reallocation effect should increase a salesperson's income, but may result in a total sales increase or decrease or, indeed, have no sales effect at all. An income-maximizer should divert some time from selling products with decreased commission rates to products with relatively higher commission rates.


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