Keywords

Sales force management; career incentives; promotion tournaments; forced ranking; peter principle; sales force owned customer loyalty; non compete agreements

Abstract

This dissertation uses game theoretic models in a principal-agent framework to study how firms optimally manage long term career related incentives for their sales people. When sales people put sales effort they face incentives not only from short term incentives like commissions and bonuses but also from long term rewards associated with progression in their career. In particular, sales people are often motivated to get promoted and avoid being laid off, to get selected to managerial positions and to form stronger relationships with customers so that they can bargain for higher wages in the future, respectively. Three different essays examine each of these three career related incentives and how firms can optimally manage them. Essay 1 (Chapter 2) studies why and how firms use a type of promotion and layoff policy, called the Forced Ranking policy, to provide optimal long term career incentives to sales people. Findings from the essay suggests that when sales people are ambiguity averse and there is economic uncertainty regarding promotions and layoffs, firms are likely to commit to a promotion policy but may or may not commit to a layoff policy as part of Forced Ranking. Interestingly, it is shown that firms enjoying higher margins are more likely to commit to both promotion and layoffs, consistent with observations from industry practice. Results also suggest that in absence of costs from promoting and laying off employees, firms should use an up-or-out contract to motivate the sales force. Essay 2 (Chapter 3) investigates how career incentives associated with promotion of sales employees to sales management roles may interfere with selection of the right sales managers. The essay was motivated by the common observation that organizations often promote their best sales people to sales managerial roles but after promotion find that the sales people are not as good as they were expected to be in their new roles, a phenomenon called Peter Principle. An alternative explanation for this phenomenon of adverse selection is provided and possible solutions are analyzed as part of the essay. In essay 3 (Chapter 4) long term career incentives that sales reps face when they can form relationships with their customers are considered. Loyalty generated from customer-salesperson relationships is often "owned" by the sales person and it can be lost if the sales person moves to another firm. Therefore, firms compete for both customers as well as sales reps with the objective of poaching customers that are loyal to the sales reps. The essay analyzes how firms can deal with such a competition. Findings suggest that contrary to general beliefs, the presence of anti-employee poaching regulations like Non-Compete clauses, or tacit collusion to not poach each other's employees may hurt firm profits under some conditions. Overall, the dissertation answers how firms can manage sales force career incentives to maximize profits.

Notes

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Graduation Date

2015

Semester

Summer

Advisor

Stock, Axel

Degree

Doctor of Philosophy (Ph.D.)

College

College of Business Administration

Degree Program

Business Administration; Marketing

Format

application/pdf

Identifier

CFE0005762

URL

http://purl.fcla.edu/fcla/etd/CFE0005762

Language

English

Release Date

August 2018

Length of Campus-only Access

3 years

Access Status

Doctoral Dissertation (Open Access)

Subjects

Business Administration -- Dissertations, Academic; Dissertations, Academic -- Business Administration

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Included in

Marketing Commons

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