The Cost of High-Powered Incentives: Employee Gaming in Enterprise Software Sales
Harvard Business School - Negotiation, Organizations and Markets Unit
February 20, 2013
Journal of Labor Economics, Forthcoming
Harvard Business School NOM Unit Working Paper No. 13-073
This paper investigates the pricing distortions that arise from the use of a common non-linear incentive scheme at a leading enterprise software vendor. The empirical results demonstrate that salespeople are adept at gaming the timing of deal closure to take advantage of the vendor's accelerating commission scheme. Specifically, salespeople agree to significantly lower pricing in quarters where they have a financial incentive to close a deal, resulting in mispricing that costs the vendor 6-8% of revenue. Robustness checks demonstrate that price discrimination by the vendor does not explain the identified effects.
Number of Pages in PDF File: 33Accepted Paper Series
Date posted: February 23, 2013
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