Optimizing Incentive Plan Design: A Case Study
AbstractWe study effects of a firm's attempt to optimize an existing incentive scheme to increase sales growth for direct store delivery workers. Before optimization workers reported Ratchet Effects that lowered productivity. The altered incentive plan offered higher compensation for increased sales relative to a sales growth target, and lower compensation for failing to meet the target. We gathered data on performance and attitudes at pilot and control sites before and after the change. Relative to control sites, sales growth increased in the pilot sites by two percent, a meaningful contribution to firm profits. We find no change in distortion of effort or manipulation of the performance measure. Workers did not substantially change number of hours worked, though allocation of time across tasks changed slightly. Despite increased productivity, workers continued to report Ratchet Effects after the change. We also find that an unplanned price increase midway through a fiscal year affected the extent of Ratchet Effects that year.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5985.
Length: 51 pages
Date of creation: Sep 2011
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Find related papers by JEL classification:
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-01 (All new papers)
- NEP-BEC-2011-10-01 (Business Economics)
- NEP-HRM-2011-10-01 (Human Capital & Human Resource Management)
- NEP-LAB-2011-10-01 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paarsch, Harry J. & Shearer, Bruce, 1996.
"Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records,"
Cahiers de recherche
9623, Université Laval - Département d'économique.
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- Harry J. Paarsch & Bruce S. Shearer, 1996. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," CIRANO Working Papers 96s-31, CIRANO.
- Paarsch, H-J & Shearer, B, 1996. "Piece Rates, Fixed Wages, and Incentive Effects : Statistical Evidence From Payroll Records," Papers 9623, Laval - Recherche en Energie.
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