Managerial Incentives, Operational Decisions, and Firm Outcomes: Evidence From a Quasi-Experiment at a Retail Chain

62 Pages Posted: 10 Jun 2018

See all articles by Saravanan Kesavan

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School

Camelia M. Kuhnen

University of North Carolina Kenan-Flagler Business School & NBER

Hyun Seok Lee

Korea University Business School

Date Written: May 24, 2018

Abstract

Using a novel data set from 75 stores of a department store retail chain that changed its incentive plan for store managers to spur greater cooperation among them and with the corporate office, we examine how incentives impact operational decisions and, consequently, store outcomes. We measure store performance using sales growth, accuracy in labor scheduling, and labor productivity. We find that emphasizing corporate goals in managers’ incentives has resulted in worsening of performance at the store level. This effect is mainly the product of store managers exerting less effort in response to the change in their pay schemes. We also document deterioration in three underlying operational decisions involved in labor scheduling, i.e., sales forecasting, labor planning, and labor execution (defined as the adjustments to labor plan in response to new demand information since the labor plan was generated) as a result of the incentive change.

Keywords: Incentive, Retail Operations, Empirical, Quasi-Experiment, Difference-in-Differences, Labor Scheduling

Suggested Citation

Kesavan, Saravanan and Kuhnen, Camelia M. and Lee, Hyun Seok, Managerial Incentives, Operational Decisions, and Firm Outcomes: Evidence From a Quasi-Experiment at a Retail Chain (May 24, 2018). Kenan Institute of Private Enterprise Research Paper No. 19-4, Available at SSRN: https://ssrn.com/abstract=3184567 or http://dx.doi.org/10.2139/ssrn.3184567

Saravanan Kesavan

University of North Carolina Kenan-Flagler Business School ( email )

300 Kenan Center Drive
Chapel Hill, NC 27599
United States

Camelia M. Kuhnen

University of North Carolina Kenan-Flagler Business School & NBER ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
(919) 9623284 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/

Hyun Seok Lee (Contact Author)

Korea University Business School ( email )

LG-POSCO 519, 145 Anam-ro
Seoul, 02841
Korea, Republic of (South Korea)
+82-2-3290-1915 (Phone)

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