Optimizing Incentive Plan Design: A Case Study
We 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.
|Date of creation:||Sep 2011|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
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.:
- Huberman, Michael, 1986. "Invisible Handshakes in Lancashire: Cotton Spinning in the First Half of the Nineteenth Century," The Journal of Economic History, Cambridge University Press, vol. 46(04), pages 987-998, December.
- Oyer, Paul, 2000. "A Theory of Sales Quotas with Limited Liability and Rent Sharing," Journal of Labor Economics, University of Chicago Press, vol. 18(3), pages 405-26, July.
- Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
- Paarsch, Harry J & Shearer, Bruce, 2000.
"Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 59-92, February.
- Paarsch, H-J & Shearer, B, 1996. "Piece Rates, Fixed Wages, and Incentive Effects : Statistical Evidence From Payroll Records," Papers 9623, Laval - Recherche en Energie.
- 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, 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.
- Paul Oyer, 1998. "Fiscal Year Ends and Nonlinear Incentive Contracts: The Effect on Business Seasonality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 149-185.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp5985. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.