Kissan Joseph

The Role of Bonus Pay in Salesforce Compensation Plans

Abstract Recent data suggest growing use of bonus payments in salesforce compensation plans to improve sales productivity and to achieve a variety of organizational objectives. We report findings from two cross-sectional field studies—a firm-level survey and a salesperson-level survey—on how bonus payments help attain selected firm objectives and their usefulness in eliciting higher salesperson performance and reducing salesforce turnover. Our findings reveal that bonuses may be effective in inducing higher sales productivity because of their flexibility in tying rewards to performance. Further, they may be effective in directing salespeople’s efforts toward specific organizational objectives such as promoting new product sales or sales to new customer groups, and enhancing customer satisfaction and retention.

Free cash flow, agency costs, and the affordability method of advertising budgeting

The allocation of excess cash has long been recognized in the finance literature as an important aspect of the basic agency conflict between managers and owners. In the advertising budgeting context, marketing scholars report that firms possessing high levels of cash tend to spend more on advertising than what seems necessary or desirable. Indeed, this positive link between excess cash and advertising expenditures constitutes a part of what is commonly referred to as the affordability method of advertising budgeting. Surprisingly, there has been little research that attempts to view this association as a manifestation of agency costs. Therefore, in this article, the authors examine whether agency costs, as measured by managerial ownership, moderate the relationship between excess cash and advertising expenditures. On the basis of received theory, the authors conceptualize that agency costs will first decrease, then increase, and then decrease again with the level of managerial ownership. Accordingly, the authors hypothesize and find that the fraction of incremental earnings reinvested in advertising follows the same pattern in managerial ownership. These findings support the notion that the use of the affordability method is driven, in part, by agency costs. The authors conclude by discussing the theoretical and managerial implications of the findings.

Price Delegation in Sales Organizations: An Empirical Investigation

The allocation of decision rights is an integral component of designing organizational architecture. Economists have long understood the importance of co-locating decision rights with the knowledge that is valuable to those decisions. Following this prescription, marketing scholars have developed strong theoretical arguments in favor of delegating pricing authority to the sales force. Empirical work, however, reveals a significant number of sales organizations yielding only minimal authority to their salespeople. Given this divergence between theory and practice, we develop and empirically test two mitigating factors that could potentially explain why firms restrict pricing authority. We test our hypotheses on a sample of 222 German sales organizations and find that the data are generally consistent with our conceptualization.

Introduction: Special Issue on Enhancing Sales Force Productivity

The “Sales Management Research Summit” held at the University of Houston in May 2004 attracted 28 sales management academicians and drew attention to the urgent need for new thinking and research in the rapidly evolving field of selling and sales management. This meeting resulted in the seven “thought piece” papers constituting the Twenty-Fifth Anniversary Special Issue of the Journal of Personal Selling & Sales Management (JPSSM), which appeared in spring 2005 (Brown and Jones 2005). Later that summer, following consultations with leading scholars in the United States and Europe, JPSSM ’s new Editor Ken Evans and Sales Force Models Area Editor Murali Mantrala, both then affiliated with the University of Missouri–Columbia, determined that a future Special Issue of JPSSM with papers focused on “enhancing sales force productivity” would be an effective way to advance research along some of the directions advocated in the Twenty-Fifth Anniversary Special Issue. The related call for papers went out in September 2005 soliciting papers presenting “new theoretical and empirical research to improve understanding of evolving sales force productivity issues as well as models, metrics, and methodologies to aid related management decisions.” To promote this initiative, there was an accompanying call for papers to be featured in a special conference on “enhancing sales force productivity,” cochaired by Sönke Albers (University of Kiel), Kissan Joseph (University of Kansas), and Murali Mantrala, to be held at the University of Missouri–Columbia College of Business in April 2006. This conference, cosponsored by the Marketing Science Institute, with the enthusiastic support of Executive Director Dominique Hanssens, ultimately featured 29 research presentations by sales management scholars from the United States, Europe, Canada, and Australia, including keynote addresses by Erin Anderson (INSEAD) and Andy Zoltners (Northwestern University and ZS Associates). The early versions of three papers in this Special Issue were first presented at this conference.

Do Bonus Payments Help Enhance Salesforce Retention

Our primary aim in this research is to examine if the existence of a bonus component in the sales compensation structure can enhance salesforce retention. We also study the impact of total sales compensation, relative to industry norms, on salesforce retention. We find that bonus payments do enhance salesforce retention among firms whose total compensation is above industry average but not among firms whose total compensation is below industry average. Further, we also examine the role of sales training, non-financial motivational tools, and length of the selling cycle on salesforce retention.

Sales force compensation: Research insights and research potential

today’s b2b selling environment is characterized by much complexity. key drivers of this complexity include group sales efforts, multipart sales offerings and multibusiness unit participation on single deals (CFo research services 2010). Furthermore, the selling process is evolving from a transactional focus to consultative and enterpriselevel selling with a corresponding shift in competencies from price and problem solving to value creation (rackham and de Vincentis 1999). However, despite this increase in complexity, practitioners still demand compensation plans that are relatively simple, error free and cost effective (CFo research services 2010). against this backdrop, it is timely to review the role of sales force compensation in b2b organizations. indeed, sales force compensation is one of the most powerful tools in a b2b firm’s arsenal for influencing sales and profitability. the purpose of a sales compensation plan is to motivate members of the sales force and/or sales management, so that the firm can coordinate the salesperson’s (or sales team’s or sales hierarchy’s) activities with the firm’s own profitmaximizing goals. this would not be a difficult management problem were salespeople’s goals and objectives aligned with the firm’s profit maximization goal. but practitioners and researchers alike have long recognized the fundamental divergence between the objectives of firms and their salespeople; the academic literature’s extensive work on agency theory seeks to find compensation and motivation solutions to precisely this problem, in sales force and other principal–agent contexts. ours is not the first article to survey and summarize the literature on sales force compensation and motivation (see also albers 2002; Coughlan 1993; Coughlan and sen 1989; Mantrala et al., 2010). We do not replicate the summaries included in these articles; rather, we focus on issues that merit heightened attention. given the application focus, our review is organized by substantive problem areas. this allows us both to report on what is known in the academic literature and to comment on areas that are underresearched and, thus, ripe for future investigation. the b2b firm has a multidimensional sales compensation problem to solve. decisions to be made include:

Incentives and job redesign: the case of the personal selling function

Changes in the internal and the external environment of organizations are causing many of them to redesign individual jobs as team functions. Sales organizations, in particular, are responding to increased selling costs by redesigning the selling function to include a support person. The basic idea here is to let the support person perform important but relatively low-skilled tasks, such as lead generation, so that the salespersons valuable time is freed up to perform important and relatively high-skilled tasks, such as product promotion. However, this trend gives rise to several interesting questions. Specifically, we ask: How are the incentives offered to the salesperson affected by the introduction of the support person? To what extent will the support person be utilized? And, how will the job be conducted under the new design? We find that the level of incentives and job redesign are related, albeit in a complex manner. We also find that the firm will not always fully utilize the support person, nor will the salesperson always fully delegate the low-skilled task to him. We conclude by discussing the implications of our findings. Copyright

Do CMO Incentives Matter? An Empirical Investigation of CMO Compensation and its Impact on Firm Performance

Despite growing interest in various facets of the Chief Marketing Officer (CMO) position, there is very little research on CMO compensation. Accordingly, we set out to investigate the determinants of CMO compensation and its effect on firm performance. Employing the lens of agency theory, we hypothesize that the CMO’s marginal productivity will positively impact the amount of total compensation as well as the extent of performance-based compensation in the CMO’s compensation contract. Moreover, we hypothesize that deviations in contracting elements from predicted levels will adversely impact firm performance. Analyzing a sample of 9,230 firm-year observations over the period 1992-2013, we find that CMOs employed at firms with high advertising and R&D intensity, and operating in competitive product markets, command larger amounts of total compensation. Moreover, a greater proportion of their compensation is market-based, with heightened sensitivity to movements in the firm’s stock price. We also find that deviations in CMO compensation elements have an adverse impact on operating performance (ROA), earnings surprises, and stock returns. Specifically, a 10% deviation in market-based compensation from predicted levels reduces ROA by 0.28%, dampens earnings surprises by 0.19%, and degrades annualized stock returns by 2.4%.

The Information Content of Marketing Investments: The Case of Sales Force Resizing Announcements

This paper is concerned with the ability of marketing investments to convey information from the “black box” of the firm to participants in the financial markets. We focus on the context of sales force resizing announcements in the pharmaceutical industry because the sales force comprises the main marketing instrument for firms in this industry. We hypothesize that sales force resizing announcements will generate a concomitant market reaction because they provide information about future demand. Moreover, we predict stronger absolute effects for “increase” announcements than for “decrease” announcements. This is because the mean-shifting and uncertainty reducing aspects of new information work in concert for increase announcements, but in opposing ways for decrease announcements. Our theory also predicts a more pronounced market reaction when investors are more uncertain about the firm’s future performance and the announcement contradicts the direction of investors’ prior beliefs. Employing an event-study analysis, we find an unusually strong two-day market reaction of 3.2% for increase announcements and no significant market reaction for decrease announcements. The hypothesized effects with respect to uncertainty and direction of investors’ prior beliefs are also supported. We conclude by discussing implications for managing the investor relations function.