Incentives versus Reciprocity: Insights from a Field Experiment

Chung, Doug J.; Narayandas, Das

doi:10.1509/jmr.15.0174

Cited by 40 publications

(14 citation statements)

References 68 publications

(85 reference statements)

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“…Chung, Steenburgh, and Sudhir (2014) analyze data from a Fortune 500 office durable goods manufacturer and find that weak performers may give up if they realize that sales quotas under the long time horizon contract become unachievable. Chung and Narayandas (2017) also find empirical evidence that under a monthly quota plan, salespeople who had a series of bad draws early in the month may decide to give up late in the month because there is no chance that they can meet or exceed the quota set by the firm.…”

Section: Introductionmentioning

confidence: 99%

“…For similar strategic reasons related to effort gaming, we can observe a “giving up” effort profile under a quota-based contract (Chung and Narayandas 2017; Chung, Steenburgh, and Sudhir 2014; Jain 2012; Steenburgh 2008). Suppose that the salesperson exerts effort in the first quarter, but demand realization is low.…”

Section: Introductionmentioning

confidence: 99%

“…As in Oyer (1998) and Steenburgh (2008), Misra and Nair (2011) find higher sales at the ends of quarters compared with early in the quarters, which again suggests that agents tend to increase effort as they get closer to the end of a compensation window. Chung and Narayandas (2017) conduct a field experiment and also report delaying effort as an issue of concern in long time horizon contracts.…”

Section: Introductionmentioning

confidence: 99%

“…Alternatively, sales agents who have already achieved sales close to the quota in early sales cycles may not have the incentive to put in much subsequent effort and may “rest on laurels” instead (Chung and Narayandas 2017; Chung, Steenburgh, and Sudhir 2014; Misra and Nair 2011). For example, suppose that in the first quarter the salesperson exerts effort and demand turns out to be high, bringing the salesperson reasonably close to the six-month quota.…”

Section: Introductionmentioning

confidence: 99%

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Multiperiod Contracting and Salesperson Effort Profiles: The Optimality of “Hockey Stick,” “Giving Up,” and “Resting on Laurels”

Jerath¹,

Long²

2020

Journal of Marketing Research

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The authors study multiperiod sales force incentive contracting in which salespeople can engage in effort gaming, a phenomenon that has extensive empirical support. Focusing on a repeated moral hazard scenario with two independent periods and a risk-neutral agent with limited liability, the authors conduct a theoretical investigation to understand which effort profiles the firm can expect under the optimal contract. The authors show that various effort profiles that may give the appearance of being suboptimal, such as postponing effort exertion (“hockey stick”) and not exerting effort after a bad or a good initial demand outcome (“giving up” and “resting on laurels,” respectively) may indeed be induced optimally by the firm. This is because, under certain conditions that depend on how severe the contracting frictions are and how effective effort exertion is in increasing demand, the firm wants to concentrate rewards on extreme demand outcomes. Doing this induces gaming and reduces expected demand but also makes motivating effort cheaper, thus saving on incentive payments. On introducing dependence between time periods, such as when the agent can transfer demands between periods, this insight continues to hold and, furthermore, “hockey stick,” “giving up,” and “resting on laurels” can be optimal for the firm even under repeated short time horizon contracting. The results imply that one must carefully consider the setting and environmental factors when making inferences about contract effectiveness from dynamic effort profiles of agents.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Multiperiod Contracting and Salesperson Effort Profiles: The Optimality of “Hockey Stick,” “Giving Up,” and “Resting on Laurels”

Jerath¹,

Long²

2020

Journal of Marketing Research

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“…Research has extensively examined the effect of extrinsic motivators on sales force effectiveness (e.g., Bommaraju and Hohenberg 2018; Chowdhury 1993; Chung and Narayandas 2017; Chung, Steenburgh, and Sudhir 2014; Kalra and Shi 2001; Kishore et al 2013). Primarily focused on the design of optimal incentive contracts, this literature has generated many valuable prescriptions for the use of incentives (e.g., bonuses, sales contests).…”

mentioning

confidence: 99%

Managing Laggards: The Importance of a Deep Sales Bench

Boichuk¹,

Bommaraju²,

Ahearne³

et al. 2019

Journal of Marketing Research

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Sales leaders often use threats of punishment to manage poor performers (i.e., laggards), but little research has examined the effect of these threats. The current research addresses this gap by investigating an intervention termed the “bench program” with a field-based quasi experiment and a randomized lab experiment. In the field, the company under study told salespeople in treatment districts that a trainee would replace them at the end of the year if they failed to hit their quota and placed last in their district. Difference-in-differences analyses of matched treatment and control groups show that the bench program had an immediate and sustained impact on performance. Moreover, laggards improved their performance more than higher performers, and salespeople with larger advice networks improved their performance more than salespeople with smaller advice networks. A lab experiment compares the bench program with a program that had the same threat of firing but did not have replacements in sight. Performance in the bench program exceeded that in the firing condition, indicating that the vividness of a threat can increase its deterrent value.

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