The Cost of High-Powered Incentives: Employee Gaming in Enterprise Software Sales

33 Pages Posted: 23 Feb 2013

See all articles by Ian Larkin

Ian Larkin

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: February 20, 2013

Abstract

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.

Suggested Citation

Larkin, Ian, The Cost of High-Powered Incentives: Employee Gaming in Enterprise Software Sales (February 20, 2013). Journal of Labor Economics, Forthcoming, Harvard Business School NOM Unit Working Paper No. 13-073, Available at SSRN: https://ssrn.com/abstract=2221896

Ian Larkin (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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