have each salesperson choose a personal balance of fixed and variable compensation. For example, the salesperson can choose a high commission percentage with no fixed salary or, at the other extreme, a modest fixed salary and no commission--or some combination in between. Each choice implicitly reveals how much the salesperson plans to sell, much as an insurance subscriber's choice of deductible and premium reveals how sick she is. Based on a truth-telling mechanism from game theory, this design works on paper.
Wednesday, August 09, 2006
Nice article from the March 2006 of Scientific American on the use of Experimental Economics at Hewlett-Packard.
Companies that rely on Salespeople's inputs to forecast sales face problems of Asymmetric information, similar to those that are confronted by Insurance companies. Salespeople are tempted to undercommit, which could result in the company being underprepared for actual sales. The solution, very similar to the one devised by insurance companies.