Compensation and price delegation for heterogeneous sales force

A heterogeneous sales force may not be as desirable as a homogeneous sales force for two reasons: premiums are required for all except from one agent type, and only the highest type would work as hard as though they were from a homogeneous sales force. This study revisits the heterogeneous sales force compensation and price delegation problem with type-dependent reservation. We find that an equilibrium separating or pooling compensation contract always exists. Different types of agents may receive premiums, and there are scenarios when no premiums are paid. Retaining centralized pricing provides a tool for regulating agent behavior. More than one or even all agent types may work as hard as though they were members of a homogeneous sales force. These findings differ from existing results and their driving force is the dynamics between the differences in reservations and agents’ effort costs arising from concealing their true types