Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans

Chung, Doug J.; Steenburgh, Thomas J.; Sudhir, K.

doi:10.2139/ssrn.1491283

Cited by 61 publications

(78 citation statements)

References 39 publications

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“…6 In the sales domain, Chung, Steenburgh, and Sudhir (2014) find that bonuses indeed enhance productivity. 7 In the same survey described in footnote 4, we asked each participant to evaluate the statement "the less likely the product is going to succeed, the greater incentives the company has to offer to motivate its product development workforce" on a 5-point Likert scale, with 1 being "strongly disagree" and 5 being "strongly agree."…”

Section: Present the Results Of The Product Development And Managemenmentioning

confidence: 99%

Deadlines in Product Development

Zhang

2016

Management Science

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Deadlines are common in product development and are often felt to be too harsh -many development efforts are still worth continuing at the time of mandated termination. We examine the value of deadlines from the agency-theoretic perspective. We consider a firm that pays an agent to lead product development activities. The chance of success depends on the viability of the project and the effort of the agent. As the project proceeds without success, doubts grow as to whether the project is viable. To motivate continued effort, the firm must promise the agent a generous reward if success is achieved during the late stage of development. However, rewarding late success undermines effort incentives in the early stage. The firm may find it more profitable to impose a hard, early deadline to eliminate the agent's dynamic incentive to procrastinate. We derive conditions under which the firm should impose such deadlines.

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Section: Present the Results Of The Product Development And Managemenmentioning

confidence: 99%

Deadlines in Product Development

Zhang

2016

Management Science

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“…The dynamic game model, in which multiple agents make decisions simultaneously and the utility each agent gets depends on others decisions, is one specific type of dynamic structural model. It has been widely adopted applied in industrial organization research (for example, Pakes and McGuire 1994, Ericson and Pakes 1995, Bajari et al 2007, Aguirregabiria and Mira 2007, Aguirregabiria and Ho 2009) and marketing (for example, Dube et al 2005, Sweeting 2007, Ryan and Tucker 2008, Chung et al 2009, Misra and Nair 2009, Kumar and Sun 2009, Ching 2010, Lu et al 2010. 4 Of these papers, the most closely related to our work are Kumar and Sun (2009) who use a dynamic game to examine why users contribute to connected goods in social networking sites and Lu et al (2010) who study how the social structure of individuals on a social media platform affects their willingness to share knowledge with peers.…”

Section: Literature Reviewmentioning

confidence: 99%

A Structural Model of Employee Behavioral Dynamics in Enterprise Social Media

2015

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We develop and estimate a dynamic structural framework to analyze social media content creation and consumption behavior by employees within an enterprise. We focus in particular on blogging behavior by employees. The model incorporates two key features, which are ubiquitous in blogging forums: users face a trade-off between blog posting and blog reading as well as a trade-off between work-related content and leisure-related content. We apply the model to a unique dataset that comprises of the complete details of blog posting and reading behavior of 2396 employees over a 15-month period at a Fortune 1000 IT services and consulting firm. We find that blogging has a significant long-term effect in that it is only in the long term that the benefits from blogging outweigh the costs of content creation. There is also evidence of strong competition among employees with regard to attracting readership for their posts. While readership of leisure posts provides little direct utility, employees still post a significant amount of these posts because there is a significant spillover effect on the readership of work posts from the creation of leisure posts. In addition, we find that that the utility employees derive from posting work-related blogging is about 4 times what they derive from leisure blogging. Reading and writing work-related posts is more costly than leisure-related posts on an average. We conduct counterfactual experiments that provide insights into how different policies may affect employee behavior. We find that a policy of prohibiting leisure-related activities can hurt the knowledge sharing in enterprise setting. By demonstrating that there are positive spillovers from leisure-related blogging to work-related blogging, our results suggest that a policy of abolishing leisure-related content creation can inadvertently have adverse consequences on work-related content creation in an enterprise setting.

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“…While these comparative dynamics are conditioned on the particular characteristics of the current compensation plan, they allow us to investigate changes in agent behavior and output under the alternative compensation scenarios. 14 We evaluate the di¤erent scenarios based on …rms' expected pro…ts under the new payment policy, as de…ned in equation (10). 15 The empirical analog of (10) is constructed as follows:…”

Section: Comparative Dynamics and A New Planmentioning

confidence: 99%

A structural model of sales-force compensation dynamics: Estimation and field implementation

2011

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We present an empirical framework to analyze real-world sales-force compensation schemes, and report on a multi-million dollar, multi-year project involving a large contact lens manufacturer at the US, where the model was used to improve sales-force contracts. The model is built on agency theory, and solved using numerical dynamic programming techniques. The model is ‡exi-ble enough to handle quotas and bonuses, output-based commission schemes, as well as "ratcheting" of compensation based on past performance, all of which are ubiquitous in actual contracts. The model explicitly incorporates the dynamics induced by these aspects in agent behavior. We apply the model to a rich dataset that comprises the complete details of sales and compensation plans for the …rm's US sales-force. We use the model to evaluate pro…t-improving, theoretically-preferred changes to the extant compensation scheme. These recommendations were then implemented at the focal …rm. Agent behavior and output under the new compensation plan is found to change as predicted. The new plan resulted in a 9% improvement in overall revenues, which translates to about $12 million incremental revenues annually, indicating the success of the …eld-implementation. The results bear out the face validity of dynamic agency theory for real-world compensation design. More generally, our results …t into a growing literature that illustrates that dynamic programming-based solutions, when combined with structural empirical speci…cations of behavior, can help signi…cantly improve marketing decision-making, and …rms'pro…tability.

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Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans

Cited by 61 publications

References 39 publications

Deadlines in Product Development

Deadlines in Product Development

A Structural Model of Employee Behavioral Dynamics in Enterprise Social Media

A structural model of sales-force compensation dynamics: Estimation and field implementation

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