QUOTA-BASED COMPENSATION PLANS FOR MULTITERRITORY HETEROGENEOUS SALESFORCES

We compare quota-based salesforce compensation plans with the BLSS pla n, i.e., the optimal curvilinear agency-theory-based compensation plan s proposed in Basu, Lal, Srinivasan and Staelin (1985). A quota plan p ays a fixed salary which is supplemented by commission income that is a prespecified fraction of the dollar sales that exceed the quota. For a salesforce comprised of multiple salespersons/territories, we consi der a basic quota plan where the commission rate and salary remain the same across salespersons; however, quotas vary across salespersons/te rritories. Compared to the BLSS plan that is individually tailored to each salesperson/territory, the basic quota plan's total nonoptimality in profit has two components: (i) a shape-induced nonoptimality arisi ng from the fact that the quota-based plan does not have the same opti mal shape as the curvilinear BLSS plan, and (ii) a heterogeneity-induc ed nonoptimality arising from the fact that the salary and commission rate in the basic quota plan are constrained to be the same across the salesforce. Our numerical experiments indicate that the total nonopti mality is merely about 1% for the parametric scenarios studied. The ba sic quota plan is simpler to implement than the BLSS plan. Furthermore , changes in business conditions in a territory, or the transfer of a salesperson from one territory to another, can be accommodated by chan ging only the quota, without having to change the salary and the commi ssion rate structure. Such advantages, together with our result that t he nonoptimality is slight, suggest that quota-based plans offer consi derable potential as a salesforce compensation scheme.