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Date of Award

Spring 5-15-2017

Author's School

Graduate School of Arts and Sciences

Author's Department

Business Administration

Additional Affiliations

Olin Business School

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

This dissertation studies two important questions in salesforce management empirically. The first essay studies how commissions influence salespeople’s effort allocation towards differentiated products, and thus the impact of such effort on the demand and the substitution pattern between products. The second essay studies how career movements, including promotions and demotions within a company, together with compensation drive salespeople’s effort. The first essay develops a salesforce-driven consumer choice model to study how performancebased commissions incentivize a salesperson’s service effort toward heterogeneous, substitutable products carried by the firm. I use a structural approach to back out the effort that is unobserved from data, and conduct counterfactual experiments that help provide important managerial insights. The model quantifies the impact of commissions on salespeople’s service effort toward differentiated products, and the impact of such effort on the demand and the substitution pattern between products. In the empirical application, I calculate the own- and cross-elasticities of demand with respect to the change in commissions. I further demonstrate how to use these results to compare the effectiveness of various performance-based incentive policies. The second essay empirically studies the effectiveness of compensation schemes and career movements on worker productivity in a Japanese auto sales firm that offers its employees both types of incentives. A salesperson’s work performance influences not only his current commission, but also future career movements including promotion to the managerial level or transfer to other non-sales jobs. In response to the economic recession, the firm started a reform in personnel management that drastically revamped the compensation structure and how salespeople are promoted or transferred, providing me with rich data variation for estimating a dynamic model that captures salespeople’s work effort decisions under different incentive systems. The results show that, compared with the counterfactual scenario when there are only monetary compensations as the reward for performance, career movements increase the firm’s gross profit by 95 percent, suggesting that long-term incentives can significantly complement short-term incentives to enhance employees’ productivity. The opportunity of promotion provides a much stronger incentive to salespeople than the fear of being transferred. I also find that about half of the profit increase from the reform comes from the increased power of the incentive from the compensation scheme, and the rest from the change in the system of career movements. Finally, I illustrate how the firm can implement an alternative policy for job evaluations that places more weight on performance to further incentivize the work effort from young and middle-aged salespeople, and how the firm can achieve a higher net profit by changing the current wage spread between managers and salespeople.

Language

English (en)

Chair and Committee

Tat Chan

Committee Members

Seethu Seetharaman, Raphael Thomadsen, Chakravarthi Narasimhan, John Nachbar,

Comments

Permanent URL: https://doi.org/10.7936/K78C9TPT

Available for download on Saturday, May 15, 2117

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