Do Agents Game Their Agents' Behavior? Evidence from Sales Managers

29 Pages Posted: 20 Mar 2013  

Alan Benson

University of Minnesota - Twin Cities - Carlson School of Management; Massachusetts Institute of Technology (MIT)

Date Written: March 19, 2013

Abstract

This paper explores intermediary agency problems, specifically the use and misuse of authority and incentives in organizational hierarchies. Through a principal-supervisor-agent model inspired by sales settings, I propose organizations delegate authority over salespeople to frontline sales mangers because they can decompose performance measures into ability and luck. The model yields the result that managers on the cusp of a quota have a unique personal incentive to retain and adjust quotas for poor performing subordinates, permitting me to isolate an interest of a manager from the firm. I parametrically estimate the model using detailed microdata from 244 firms that subscribe to a "cloud"-based service for processing sales and compensation. I estimate 13-15% of quota adjustments and retentions among poor performers are explained by the managers' unique personal interest in meeting a quota. I use agency theory to discuss how firms mitigate the cost of gaming.

Keywords: Agency Theory, Gaming, Incentives, Sales, Compensation

JEL Classification: J33, D22, L21, M51, M52

Suggested Citation

Benson, Alan, Do Agents Game Their Agents' Behavior? Evidence from Sales Managers (March 19, 2013). Available at SSRN: https://ssrn.com/abstract=2235922 or http://dx.doi.org/10.2139/ssrn.2235922

Alan Benson (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

HOME PAGE: http://https://sites.google.com/site/amb263/

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://web.mit.edu/alanmb/www/index.htm

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