An Empirical Analysis of Continuing Improvements Following the Implementation of a Performance-Based Compensation Plan

Posted: 24 May 2001

See all articles by Rajiv D. Banker

Rajiv D. Banker

Temple University - Department of Accounting

Seok-Young Lee

Sungshin Women's University

Gordon Potter

Cornell University - School of Hotel Administration

Dhinu Srinivasan

University of Pittsburgh - Katz Graduate School of Business

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Abstract

Performance improvements subsequent to the implementation of a pay-for-performance plan can result because more productive employees self-select into the firm (selection effect) and/or because employees allocate effort to become more effective (effort effect). We analyze individual performance data for 3,776 sales employees of a retail firm to evaluate these alternative sources of continuing performance improvement. The incentive plan helps the firm attract and retain more productive sales employees, and motivates these employees to further improve their productivity. In contrast, the less productive sales employees' performance declines before they leave the firm.

Keywords: Salesforce compensation; Pay-for-performance; Self selection; Incentive plans; Moral hazard; Productivity improvement

JEL Classification: D82, J33, M12, M30

Suggested Citation

Banker, Rajiv D. and Lee, Seok-Young and Potter, Gordon S. and Srinivasan, Dhinu, An Empirical Analysis of Continuing Improvements Following the Implementation of a Performance-Based Compensation Plan. Journal of Accounting and Economics, Vol. 30, No. 3, December 2000. Available at SSRN: https://ssrn.com/abstract=268155

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Seok-Young Lee

Sungshin Women's University ( email )

249-1 Dong-Dong 3-Ka Sungbuk-Ku
Department of Business Administration
Seoul 136-742
KOREA
+82 2 920-7464 (Phone)
+82 2 920-7363 (Fax)

Gordon S. Potter

Cornell University - School of Hotel Administration ( email )

435B Statler Hall
Ithaca, NY 14853-6902
United States
607-255-8061 (Phone)
607-255-4179 (Fax)

Dhinu Srinivasan (Contact Author)

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States
412-648-1513 (Phone)
412-648-1693 (Fax)

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