Damping effect of the percentage-based scheme: A novel resilient salesforce compensation to battle market turbulence
This study examines the resilience of two salesforce compensations—the quantity-based (Q-type) and percentage-based (P-type)—under market turbulence. These two compensations are used to incentivize salespeople to promote demand. However, they work in different ways: the Q-type is an absolute compens...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
KeAi Communications Co., Ltd.
2025-06-01
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| Series: | Journal of Management Science and Engineering |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2096232024000611 |
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| Summary: | This study examines the resilience of two salesforce compensations—the quantity-based (Q-type) and percentage-based (P-type)—under market turbulence. These two compensations are used to incentivize salespeople to promote demand. However, they work in different ways: the Q-type is an absolute compensation under which salespeople's decisions are based on the commission rate and independent of others, whereas the P-type is a relative compensation where a salesperson needs to compete with others to get a higher percentage because compensation is the corresponding proportion of the total compensation. We develop a game-theoretic model involving a firm and salespeople. The firm first announces the compensation and signs up salespeople. Then, salespeople boost demand during the sales season, facing market turbulence. We find some interesting management insights. First, the P-type compensation exerts a damping effect during market turbulence: salespeople under the P-type proactively and rapidly adjust their sales efforts, whereas those under the Q-type do not respond effectively. Second, in the face of market turbulence, the P-type demonstrates greater resilience than the Q-type, which is attributed to its damping effect on salespeople's efforts. Third, while the Q-type is a more reliable choice for firms aiming to open up the market, the P-type is better suited for stabilizing cash flow. Our study introduces an innovative P-type compensation scheme to address market turbulence. This scheme has the potential to transform the industry's approach to compensating salespeople. |
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| ISSN: | 2096-2320 |