Abstract
The authors conduct a field experiment in which they vary the sales force compensation scheme at an Asian enterprise that sells consumer durable goods. With variation generated by the experimental treatments, the authors model sales force performance to identify the effectiveness of various forms of conditional and unconditional compensation. They account for salesperson heterogeneity using a hierarchical Bayesian framework to estimate the model. They find conditional compensation in the form of quota bonus incentives to improve performance; however, such compensation may lead to lower future performance. The authors find little difference in effectiveness between a quota bonus plan and punitive bonus plans framed as a penalty for not achieving quota. They find that unconditional compensation, in the form of reciprocity, is effective at improving sales force performance only when it is given as a delayed reward; however, the effectiveness of this plan decreases with repeated exposure. The authors also find heterogeneity in the impact of compensation on performance across salespeople, such that unconditional compensation is more effective for salespeople with high base performance, whereas conditional compensation is equally effective across all types of salespeople.
Highlights
Personal selling is a significant part of the world economy
The number becomes even larger in more populous countries, with over 65 million people being employed in personal selling in China (National Bureau of Statistics of China, 2012)
We empirically examine the effectiveness of unconditional compensation to test the theory of gift exchange (Adams, 1963) that assumes a positive relation between effort and wages whereby a salesperson reciprocates to higher wages with higher levels of effort; a different behavior than the self-interested behavior outcome predicted in agency theory
Summary
The more than 14 million people employed in personal selling in the United States alone represent about 10 percent of the entire U.S labor force (U.S Department of Labor, 2012). The number becomes even larger in more populous countries, with over 65 million people being employed in personal selling in China (National Bureau of Statistics of China, 2012). The $800 billion U.S businesses spend annually maintaining their sales forces is 4.7 times the total spending on all media advertising (Steenburgh and Ahearne, 2012; Zoltners et al, 2013). Such expenditures are a strong motivator of effective sales force management
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