Wage transparency and social comparison in salesforce compensation

Management Science, 66(11), 5290-5315, 2020

43 Pages Posted: 10 Jun 2021

See all articles by Xiaoyang Long

Xiaoyang Long

University of Wisconsin - Madison - School of Business

Javad Nasiry

McGill University

Date Written: July 20, 2019

Abstract

When wages are transparent, sales agents may compare their pay with that of their peers and experience positive or negative feelings if those peers are paid (respectively) less or more. We investigate the implications of such social comparisons on sales agents’ effort decisions and their incentives to help or collaborate with each other. We then characterize the firm’s optimal salesforce compensation scheme and the conditions under which wage transparency benefits the firm. Our results show that the work environment—which includes such aspects as demand uncertainty, correlation across sales territories, and the possibility of help/collaboration— plays a significant role in the firm’s compensation and wage transparency decisions. In particular, wage transparency is more likely to benefit the firm when demand uncertainty is low, sales outcomes are positively
correlated across different sales territories, and sales agents can collaborate at low cost. We find that, contrary to conventional wisdom, social comparisons need not reduce collaboration among agents. Our study also highlights the importance of providing the right mix of individual and group incentives to elicit the benefits of wage transparency.

Keywords: agency theory, salesforce compensation, social comparison, collaboration

Suggested Citation

Long, Xiaoyang and Nasiry, Javad, Wage transparency and social comparison in salesforce compensation (July 20, 2019). Management Science, 66(11), 5290-5315, 2020, Available at SSRN: https://ssrn.com/abstract=3863521

Xiaoyang Long (Contact Author)

University of Wisconsin - Madison - School of Business ( email )

Madison, WI
United States

Javad Nasiry

McGill University ( email )

1001 Sherbrooke St. West
Montreal
Canada

HOME PAGE: http://https://www.mcgill.ca/desautels/javad-nasiry

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