Optimizing incentive plan design: A case study

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 5985

Classification and Topics

• Classification: Wirtschaft ; Personnel Economics: Compensation and Compensation Methods and Their Effects ; Compensation Packages; Payment Methods ; Personnel Management; Executives; Executive Compensation ; Retail and Wholesale Trade; e-Commerce
• Subject: incentives ; ratchet effect ; Leistungsanreiz ; Handel ; Direktmarketing ; Kundendienst ; Arbeitsproduktivität ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Levenson, Alec ; Zoghi, Cindy ; Gibbs, Michael ; Benson, George
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/55045
• URN: urn:nbn:de:101:1-20111011201
• Last update: 10.03.2025, 11:43 AM CET