Does Sales Commission Affect the Sales Mix? Evidence from an Automobile Distribution Company

Abstract

This study examines whether employees are more likely to allocate their effort to selling products that carry a higher commission following the implementation of a commission system. Although performance-based compensation is widespread, empirical evidence of its effect on employee behavior is scant. Using 17,709 individual-level data from 2000 to 2004 in an automobile distribution company that implemented a commission system in 2002, this study investigates the effect of sale commission on the sales mix. The results show that employees allocate more effort to cars with the highest expected sales commission in their particular sales mix when commission varies widely across products. This finding provides empirical evidence that placing a higher commission on a specific product enhances the sales of that product in a multi-product setting, and also suggests that the effect of a commission system is more significant for employees whose sales mix before the implementation of the system had a smaller proportion of the products with the highest expected sales commission. In conclusion, it is proposed that commission systems are effective in strategically directing the behavior of employees and consequently achieving goal congruence between a firm and employees.