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The Perils of Altering Incentive Plans: A case study

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  • Kauhanen, Antti

Abstract

This paper studies a retail chain that introduced a sales incentive plan that rewarded for exceeding a sales target and subsequently cut the incentive intensity in addition to increasing the target. Utilizing monthly panel data for 54 months for all 53 units of the chain the paper shows that the introduction of the sales incentive plan increased sales and profitability, while the changes in the plan lead to a marked drop in sales and profitability. Thus, modifying the incentive plan proved costly for the firm. The results are consistent with the gift-exchange model of labor contracts.

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Bibliographic Info

Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1247.

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Length: 29 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:rif:dpaper:1247

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Keywords: incentive pay; gift exchange; panel data;

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Cited by:
  1. Kato, Takao & Kauhanen, Antti & Salmi, Julia, 2013. "Empirical Evidence on the Dynamics of Incentive Plans," ETLA Working Papers 20, The Research Institute of the Finnish Economy.
  2. Kato, Takao & Kauhanen, Antti & Kujansuu, Essi, 2013. "The Performance Effects of Individual and Group Incentives: A Case Study," ETLA Working Papers 19, The Research Institute of the Finnish Economy.

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