Incentives versus Reciprocity: Insights from a Field Experiment

by Doug J. Chung & Das Narayandas

Overview — Sales force compensation is a key instrument available to firms for motivating and enhancing sales performance. What are the most effective forms of compensation? In a field experiment involving four regional sales forces of a prominent firm in India, the authors examined the impact of conditional and unconditional bonus schemes. Findings from this study provide guidance to firms on how to use conditional and unconditional compensation to enhance sales rep productivity and better manage the achievement of sales forecasts.

Author Abstract

We conduct a field experiment in which we vary the sales force compensation scheme at an Asian enterprise that sells consumer durable goods. With variation generated by the experimental treatments, we model salesforce performance to identify the effectiveness of various forms of conditional and unconditional compensation. We account for salesperson heterogeneity by using a hierarchical Bayesian framework to estimate our model. We find conditional compensation in the form of quota-bonus incentives to improve performance. We find no evidence that effectiveness differs between a quota-bonus plan and punitive-bonus plan framed as a penalty for not achieving quota. We find unconditional compensation in the form of reciprocity to be effective at improving sales force performance only when given as a delayed reward; when immediate, sales force performance decreases. We also find heterogeneity in the impact of compensation on performance across salespeople; unconditional compensation is more effective for salespeople with high intrinsic ability, whereas conditional compensation is equally effective across all types of salespeople. Lastly, we find seasonality to significantly influence sales volumes for low ability, but not so much for high ability, salespeople.