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An Empirical Examination of the Impacts from Termination of a Performance-Based Incentive Plan

Author
Banker, Rajiv D.; Lee, Seok-Young; Potter, Gordon S.; Srinivasan, Dhinu
Abstract
This paper reports on the financial impacts from the termination of a pay for performance plan for the salesforce at a retail establishment. Using monthly panel data spanning more than eight years for 15 outlets of a major retailer, this study documents that store-level sales and operating profits decrease after the incentive plan is terminated. Individual performance data are then investigated to help identify the role of effort and selection effects in explaining the documented decrease. The analysis of the individual employee sales data reveals that virtually all of the declining store level sales can be explained by selection effects.
Date Issued
2015-01-01Subject
incentive compensation; pay for performance; agency theory; termination of incentive plan; sales force compensation
Rights
Required Publisher Statement: Copyright held by the authors.
Type
preprint