Designing Compensation Strategy with Game Theory Perspectives

[We’re pleased to welcome back Pankaj M. Madhani, Associate Dean and Professor of ICFAI Business School (IBS). Dr. Madhani is the author of “Salesforce Control and Compensation System: A Game Theory Model Approach which appeared in Compensation and Benefits Review, Volume 47, Issue 4, and is currently free to read for a limited time. From Madhani:]

The performance of a sales organization is positively influenced by ethical behavior of sales people. The design of salesforce control and compensation system is crucial in salesforce management as it plays an important role in influencing ethics of salespeople. To understand this relationship, this research applies game theory model in the areas of salesforce control and compensation system.

The propensity for sales people to make unethical choices can be reduced by designing an appropriate salesforce control system and a relevant compensation plan. Ethical behavior in sales organization can also be influenced by various organizational drivers such as ethical climate, code of ethics, hiring, selection and training process and ethical leadership. By such organizational influences, if a salesperson is motivated to act ethically by putting high efforts for building long term customer relationships, trust and loyalty, it results into a win-win situation for both sales people and the organization. Research has developed various frameworks, models and payoff matrices to validate application of game theory in the field of salesforce compensation. After considering multiple scenarios in the game to identify optimal payoff, research concludes that a sales organization is better off with outcome control when sales people behave honestly as it has the highest payoff among all other possibilities.


Pankaj M. Madhani earned bachelor’s degrees in chemical engineering and law, a master’s degree in business administration from Northern Illinois University, a master’s degree in computer science from Illinois Institute of Technology in Chicago, and a PhD in strategic management from CEPT University.

He has more than 30 years of corporate and academic experience in India and the United States. During his tenure in the corporate sector, he was recognized with theOutstanding Young Managers Award. He is now working as a professor at ICFAI Business School (IBS) where he received the Best Teacher Award from the IBS Alumni Federation. He is also the recipient of the Best Mentor Award. He has published various management books and more than 300 book chapters and research articles in several refereed academic and practitioner journals such as World at Work Journal and the European Business Review. He has received the Best Research Paper Award at the IMCON-2016 International Management Convention. He is a frequent contributor to Compensation & Benefits Review and has published 19 articles on sales compensation. His main research interests include salesforce compensation, corporate governance and business strategy. He is also editor of The IUP Journal of Corporate Governance.

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Salesforce Control and Compensation System: A Game Theory Model Approach

This entry was posted in Compensation and Benefits, Ethics, Management, Management Theory by Cynthia Nalevanko, Senior Editor, SAGE Publishing. Bookmark the permalink.

About Cynthia Nalevanko, Senior Editor, SAGE Publishing

Founded in 1965, SAGE is the world’s leading independent academic and professional publisher. Known for our commitment to quality and innovation, SAGE has helped inform and educate a global community of scholars, practitioners, researchers, and students across a broad range of subject areas. With over 1500 employees globally from principal offices in Los Angeles, London, New Delhi, Singapore, Washington DC, and Melburne, our publishing program includes more than 1000 journals and over 900 books, reference works and databases a year in business, humanities, social sciences, science, technology and medicine. Believing passionately that engaged scholarship lies at the heart of any healthy society and that education is intrinsically valuable, SAGE aims to be the world’s leading independent academic and professional publisher. This means playing a creative role in society by disseminating teaching and research on a global scale, the cornerstones of which are good, long-term relationships, a focus on our markets, and an ability to combine quality and innovation. Leading authors, editors and societies should feel that SAGE is their natural home: we believe in meeting the range of their needs, and in publishing the best of their work. We are a growing company, and our financial success comes from thinking creatively about our markets and actively responding to the needs of our customers.

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