An Empirical Analysis of Continuing Improvements Following the Implementation of a Performance-Based Compensation Plan
Posted: 24 May 2001
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: Suggested Citation