Multiperiod Contracting and Salesperson Effort Profiles: The Optimality of “Hockey Stick,” “Giving Up,” and “Resting on Laurels”

Abstract

The authors study multiperiod sales force incentive contracting in which salespeople can engage in effort gaming, a phenomenon that has extensive empirical support. Focusing on a repeated moral hazard scenario with two independent periods and a risk-neutral agent with limited liability, the authors conduct a theoretical investigation to understand which effort profiles the firm can expect under the optimal contract. The authors show that various effort profiles that may give the appearance of being suboptimal, such as postponing effort exertion (“hockey stick”) and not exerting effort after a bad or a good initial demand outcome (“giving up” and “resting on laurels,” respectively) may indeed be induced optimally by the firm. This is because, under certain conditions that depend on how severe the contracting frictions are and how effective effort exertion is in increasing demand, the firm wants to concentrate rewards on extreme demand outcomes. Doing this induces gaming and reduces expected demand but also makes motivating effort cheaper, thus saving on incentive payments. On introducing dependence between time periods, such as when the agent can transfer demands between periods, this insight continues to hold and, furthermore, “hockey stick,” “giving up,” and “resting on laurels” can be optimal for the firm even under repeated short time horizon contracting. The results imply that one must carefully consider the setting and environmental factors when making inferences about contract effectiveness from dynamic effort profiles of agents.

Agile contracting: Managing incentives under uncertain needs

“…Further, it is also consistent with the existing literature that advocates the use of deadlines in product development; see, for example, Zhang (2016). 6 In any period t = 1, 2, … , T, the agent can exert a costly, private effort e t ∈ {0, 1}, where e t = 1 (respectively, e t = 0) represents working (respectively, shirking); see, for example, Jerath and Long (2020) and Green and Taylor (2016) who also use binary effort for tractability. The outcome of the effort e t is realized in period t and denoted by Z t ∈ {0, 1}, where Z t = 1 (respectively, Z t = 0) represents the event that the agent succeeds (respectively, fails) in developing the story.…”

“…In any period $$t=1,2,\ldots , T$$, the agent can exert a costly, private effort $$e_t \in \lbrace 0, 1\rbrace$$, where $$e_t = 1$$ (respectively, $$e_t = 0$$) represents working (respectively, shirking); see, for example, Jerath and Long (2020) and Green and Taylor (2016) who also use binary effort for tractability. The outcome of the effort $$e_t$$ is realized in period t and denoted by $$Z_t \in \lbrace 0, 1\rbrace$$, where $$Z_t = 1$$ (respectively, $$Z_t = 0$$) represents the event that the agent succeeds (respectively, fails) in developing the story.…”

Engaging the sales force in digital solution selling: how sales control systems resolve agency problems to create and capture superior value

“…This is a major limitation because sales force compensation and performance management are difficult in firms where traditional and digitally-enabled business models coexist (Ulaga and Loveland, 2014). Recent research has used advanced theoretical (Jerath and Long, 2020) and empirical modeling (Chung et al , 2021) to compare control systems and compensation plans in generic business-to-business sales settings. SaaS companies provide a fertile ground to further explore DS sales control systems and compensation plans.…”

Development of Hockey Game and Model for Learning Physical Education in Children’s Elementary School

“…According to them the strengths of the game models are that they are still a new game for children, a unique game tool, a modified game system adapted for learning so that it makes primary school students interested and then has an impact on hockey game products as playing support to attract the attention of high school elementary students. The visual advantage with a bat from a modified water pipe and goalpost makes hockey games interesting and is loved by high-grade elementary school children (Jerath & Long 2020;Mustofa et al 2019). High school students' interest in media Hockey games are motivations that can increase student interest during the play process related to increased student movement activities.…”