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Employee Responses to Compensation Changes: Evidence from a Sales Firm

Author

Listed:
  • Jason Sandvik

    (A.B. Freeman School of Business, Tulane University, New Orleans, Louisiana 70118)

  • Richard Saouma

    (Eli Broad College of Business, Michigan State University, East Lansing, Michigan 48824)

  • Nathan Seegert

    (David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112)

  • Christopher Stanton

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163; National Bureau of Economic Research (NBER), Cambridge, Massachusetts 02138)

Abstract

What are the long-term consequences of compensation changes? Using data from an inbound sales call center, we study employee responses to a compensation change that ultimately reduced take-home pay by 7% for the average affected worker. The change caused a significant increase in the turnover rate of the firm’s most productive employees, but the response was relatively muted for less productive workers. On-the-job performance changes were minimal among workers who remained at the firm. We quantify the cost of losing highly productive employees and find that their heightened sensitivity to changes in compensation limits managers’ ability to adjust incentives. Our results speak to a driver of compensation rigidity and the difficulty managers face when setting compensation.

Suggested Citation

  • Jason Sandvik & Richard Saouma & Nathan Seegert & Christopher Stanton, 2021. "Employee Responses to Compensation Changes: Evidence from a Sales Firm," Management Science, INFORMS, vol. 67(12), pages 7687-7707, December.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:12:p:7687-7707
    DOI: 10.1287/mnsc.2020.3895
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    Cited by:

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    2. Marco Fongoni & Daniel Schaefer & Carl Singleton, 2023. "When are wages cut? The roles of incomplete contracts and employee involvement," Working Papers hal-03953201, HAL.

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