Compensation and Peer Effects in Competing Sales Teams

Forthcoming at Management Science

36 Pages Posted: 25 Mar 2009 Last revised: 4 Jan 2016

See all articles by Tat Y. Chan

Tat Y. Chan

Washington University in St. Louis - John M. Olin Business School

Jia Li

Wake Forest University

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business

Date Written: August 27, 2013

Abstract

This paper examines how compensation systems impact peer effects and competition in collocated sales teams. We use department store sales data to show that compensation systems influence worker incentives to help and compete with peers within and across firms, which in turn changes how coworker ability impacts worker performance. We find that high-ability workers improve peer productivity under team-based compensation while hurting peers under individual-based compensation. We also document peer effects across firm boundaries that depend on compensation system and impact market competition, and identify how compensation influences workers’ strategic responses to peers through discretionary price discounting. We further exploit compensation changes by two firms to discount alternative explanations of endogenous compensation choice and hiring. Our results suggest that heterogeneity in worker ability enhances team performance under team-based compensation while hurting individual-based firms, and that peer interactions are a critical component in understanding firm performance and market competition.

Keywords: peer effects, social influence, compensation, sales force, marketing

Suggested Citation

Chan, Tat Y. and Li, Jia and Pierce, Lamar, Compensation and Peer Effects in Competing Sales Teams (August 27, 2013). Forthcoming at Management Science, Available at SSRN: https://ssrn.com/abstract=1367441 or http://dx.doi.org/10.2139/ssrn.1367441

Tat Y. Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Jia Li (Contact Author)

Wake Forest University

1834 Wake Forest Road
Winston-Salem, NC 27109
United States

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-5205 (Phone)

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