Is cash king for sales compensation plans? Evidence from a large-scale field intervention

Madhu Viswanathan, Xiaolin Li, George John, Om Narasimhan

Research output: Contribution to journalArticle

4 Scopus citations

Abstract

The pervasive use of merchandise (i.e., noncash) incentives in sales compensation plans is an empirical and theoretical puzzle given the supposed superiority of cash incentives in the standard theory (i.e., principal-agentmodels) as well as the scant, and contradictory empirical evidence. The authors conducted a large-scale field intervention that switched 580 salespeople at a large frozen food manufacturer away from their cash plus "merchandise points" bonus to a commensurate all-cash bonus. After controlling for salesperson, seasonality, year, and target effects, the authors estimate that sales, on average, dropped by 4.36%. Furthermore, they estimated individuallevel sales changes and effort changes to validate the incentive-effort-sales causal chain. The results show that the top salespeople experienced the largest drops in sales. A post-intervention survey of social and individual difference variables reveals that salespeople from households with less discretionary financial resources and those who think more abstractly about the uses of cash income exhibited smaller reductions in effort and sales. Although the absence of a control group prevents the authors from making strong causal inferences, this set of results nevertheless provides descriptive and suggestive evidence for separate mental accounts as the most promising explanation for the greater utility provided by merchandise incentives.

Original languageEnglish (US)
Pages (from-to)368-381
Number of pages14
JournalJournal of Marketing Research
Volume55
Issue number3
DOIs
StatePublished - Jun 2018

Keywords

  • Field experiments
  • Incentives
  • Mental accounting
  • Nonmonetary compensation
  • Sales force

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Marketing

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