Conflict between Supervisory Monitoring and Monetary Incentives

55 Pages Posted: 15 Aug 2018 Last revised: 22 Dec 2021

See all articles by Rajiv D. Banker

Rajiv D. Banker

Temple University - Department of Accounting

Shunlan Fang

Kent State University

Seok-Young Lee

Sungshin Women's University

Date Written: November 8, 2018

Abstract

Supervisory monitoring and monetary incentives are often used concurrently to mitigate agency conflicts. When an agent has to exert different types of effort for multi-dimensional tasks, little evidence exists on the interaction effect on an agent’s performance when both control mechanisms are present. We explore this question by utilizing the data from a field experiment by a high-end retailer, who used to solely monitor sales staff and introduced a monetary incentive scheme in randomly selected stores. Our results reveal that there is an inverted U-shaped relation between monitoring and performance. The marginal impact of monitoring on performance diminishes and eventually becomes negative as monitoring level increases. The introduction of the incentive plan significantly lowers the optimal level of monitoring. If the monitoring increases beyond the optimal level, a conflicting interaction effect arises because monitoring reduces the marginal impact of monetary incentives on performance.

Keywords: Incentive plans; Monitoring; Interaction between control mechanisms; Salesforce performance; Field experiment

JEL Classification: D23; D83; J33; M30; M52

Suggested Citation

Banker, Rajiv D. and Fang, Shunlan and Lee, Seok-Young, Conflict between Supervisory Monitoring and Monetary Incentives (November 8, 2018). Available at SSRN: https://ssrn.com/abstract=3232151 or http://dx.doi.org/10.2139/ssrn.3232151

Rajiv D. Banker

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Shunlan Fang (Contact Author)

Kent State University ( email )

Kent, OH 44242
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)

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