Managing Sales Employees’ Compensation: A Countercyclical Investment Approach

Abstract

This article explains a “contrarian” human resource investment strategy: countercyclical hiring. Human capital is a critical resource and provides sustainable competitive advantages. This article focuses on a resource-based view and describes a VRIO (value, rarity, imitability, organization) framework for human capital. It also describes procyclical and countercyclical hiring and corresponding compensation strategies. Countercyclical hiring by firms provides numerous advantages. However, there are also many costs associated with it. The article provides a cost-benefit analysis of countercyclical hiring, presents a model for optimal levels of countercyclical hiring and provides a matrix for establishing the relationship between firm characteristics and levels of countercyclical hiring.

Keywords: Countercyclical hiring, fixed pay, HR investment, recruiting, sales compensation, variable pay