Incentives and self-interest: Balancing revenue and rewards in China's tourism industry

The travel service industry is a fast-growing part of the Chinese economy. With the recent announcement of Beijing as the host city for the 2008 Olympics, this trend is poised to continue. The quality of a travel service company's (TSC) reputation generates revenue from repeat and referral business and is critical to the ongoing success of firms in this industry. A key factor in maintaining reputation is the level of quality services provided by tour guides employed by these firms. Using an agency theory framework, this paper suggests that the optimal compensation contract of tour guides is a mixture of outcome-based and behaviour-based contracts. The authors propose specific contract components that balance TSC revenue requirements and their need to maintain a strong reputation while providing incentives for tour guides to act in the best interest of the company.