Person:

Narayandas, Das

We conduct a field experiment in which we vary the sales force compensation scheme at an Asian enterprise that sells consumer durable goods. With variation generated by the experimental treatments, we model salesforce performance to identify the effectiveness of various forms of conditional and unconditional compensation. We account for salesperson heterogeneity by using a hierarchical Bayesian framework to estimate our model. We find conditional compensation in the form of quota-bonus incentives to improve performance. We find no evidence that effectiveness differs between a quota-bonus plan and punitive-bonus plan framed as a penalty for not achieving quota. We find unconditional compensation in the form of reciprocity to be effective at improving sales force performance only when given as a delayed reward; when immediate, sales force performance decreases. We also find heterogeneity in the impact of compensation on performance across salespeople; unconditional compensation is more effective for salespeople with high intrinsic ability, whereas conditional compensation is equally effective across all types of salespeople. Lastly, we find seasonality to significantly influence sales volumes for low ability, but not so much for high ability, salespeople.

We collaborate with a Swedish retail chain to conduct a field experiment in which we change the sales force compensation scheme from a monthly to a daily quota plan. This intervention, along with a control group that did not encounter a change in compensation structure, allows us to analyze the effect of quota frequency on sales force performance. Over a given time frame (i.e., a month), we find that shifting to a temporally more frequent quota plan—the daily quota plan as compared to the monthly quota plan—leads to an increase in sales performance, mainly for low-performing salespeople, by preventing them from giving up in the latter days of a month. However, we find high-performing salespeople to give up more frequently in earlier days of a month under the daily quota plan. With more frequent quotas, salespeople sell more quantities of low-ticket items, which benefit the firm through a decrease in returned merchandise. However, with quotas set over shorter time horizons, even the highest-performing salespeople focus mainly on incremental sales, resulting in a decrease in sales of higher-value-added and higher-margin products, thereby hurting firm profits.