Kinks as Goals: Accelerating Commissions and the Performance of Sales Teams

Abstract

Piecewise-linear reward schemes are very common in workplaces; by definition, they divide the set of possible performance levels into disjoint intervals that could have psychological value to workers. When these schemes take the form of lump-sum bonuses, any psychological rewards associated with attaining a performance interval are hard to distinguish from material ones because both material and psychological incentives predict bunching at the output needed to earn the bonus. To disentangle these effects, this paper studies a common but understudied class of piecewise-linear pay—accelerators—in which the mechanisms’ predictions conflict. Using the distributions of daily sales in 103 small retail teams, we find that daily sales bunch at accelerators, which is inconsistent with models in which only material rewards matter. Combining simple theoretical models, institutional evidence, and heterogeneity analyses, we argue that this unexpected bunching results from teams’ decisions to use the convenient, salient kink points as shared goals, which yield symbolic utility to their members when the points are attained. This paper was accepted by Lamar Pierce, behavioral economics and decision analysis. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01661 .