Quota-Based Compensation Schemes For Multi-Territory Salesforces

We show that sales quotas play an essential role in compensation schemes for multi-territory salesforces. A quota-based compensation scheme (i.e., salary plus commission proportional to sales beyond the quota) has the advantage of being simple. The quota-based compensation scheme derived using the agency theoretic paradigm has the property that the compensation scheme is equitable, i.e., for similar salespersons covering different territories, the salary, the commission rate, and the expected total compensation remain the same, but the quotas vary depending on the sales levels of the different territories. We also show that quota-based compensation schemes are flexible in that they offer management considerable ability to cope with changing business conditions._x000B__x000B_