29 Pages Posted: 20 Mar 2013
Date Written: March 19, 2013
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: Suggested Citation
By Ian Larkin