Abstract
Supervisory monitoring and monetary incentives are often used concurrently to mitigate agency conflicts. When an agent has to exert different types of effort for multi-dimensional tasks, little evidence exists on the interaction effect on an agent’s performance when both control mechanisms are present. We explore this question by utilizing the data from a field experiment by a high-end retailer, who introduced a monetary incentive scheme for the sales staff in randomly selected stores. Our results reveal that there is an inverted U-shaped relation between monitoring and performance. The introduction of the incentive plan motivates salespersons and significantly reduces the optimal level of monitoring. However, a conflicting interaction arises as the marginal impact of monitoring diminishes when monetary incentives are provided, and the marginal impact of monetary incentives decreases as the monitoring level increases and becomes negative when the monitoring level is high.
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