Price Delegation and Performance Pay: Evidence from Industrial Sales Forces

51 Pages Posted: 8 Jun 2013 Last revised: 5 Aug 2015

See all articles by Desmond (Ho-Fu) Lo

Desmond (Ho-Fu) Lo

Santa Clara University, Department of Marketing

Wouter Dessein

Columbia Business School - Finance and Economics

Mrinal Ghosh

University of Arizona, Department of Marketing

Francine Lafontaine

University of Michigan at Ann Arbor - Stephen M. Ross School of Business; University of Michigan at Ann Arbor - Department of Economics

Date Written: March 1, 2015

Abstract

Delegation is a central feature of organizational design that theory suggests should be aligned with the intensity of incentives in performance pay schemes. We explore a specific form of delegation, namely price delegation, whereby firms allow sales people to offer a maximum discount from the list price to their customers. We first develop a model of the price delegation decision based on the notions of information acquisition and constrained delegation that match the context of industrial sales. Using data on individual sales people, specifically one sales person per firm from a survey of 261 firms, we show that, consistent with predictions from our model, sales people are given more pricing authority when they are more experienced and more capable, when there is less environmental uncertainty, and to a lesser extent, when customer valuations for the product are more variable. Finally, also consistent with the predictions of our model, we show that price delegation is increasing in the intensity of incentives given to the agent.

Keywords: compensation, incentives, pricing authority, evidence, empirical, asymmetric information, agent bias

JEL Classification: D23, D82, L22, M31, M52

Suggested Citation

Lo, Desmond (Ho-Fu) and Dessein, Wouter and Ghosh, Mrinal and Lafontaine, Francine, Price Delegation and Performance Pay: Evidence from Industrial Sales Forces (March 1, 2015). Ross School of Business Paper No. 1190, Available at SSRN: https://ssrn.com/abstract=2275512 or http://dx.doi.org/10.2139/ssrn.2275512

Desmond (Ho-Fu) Lo

Santa Clara University, Department of Marketing ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

HOME PAGE: http://www.scu.edu/business/marketing/faculty/lo.cfm

Wouter Dessein

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Mrinal Ghosh

University of Arizona, Department of Marketing ( email )

Tucson, AZ 85721-0108
United States

Francine Lafontaine (Contact Author)

University of Michigan at Ann Arbor - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109-1234
United States
734-647-4915 (Phone)
734-936-0279 (Fax)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

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