The Perils of Altering Incentive Plans: A Case Study

Antti Kauhanen*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

This paper studies a retail chain that introduced a sales incentive plan that rewarded for exceeding a sales target and subsequently cut the incentive intensity in addition to increasing the target. Utilizing monthly panel data for 54months for all 53 units of the chain the paper shows that the introduction of the sales incentive plan increased sales and profitability, whereas the changes in the plan lead to a marked drop in sales and profitability. Thus, modifying the incentive plan proved costly for the firm. The results are consistent with the gift-exchange model of labor contracts.

Original languageEnglish
Pages (from-to)371-384
Number of pages14
JournalManagerial and Decision Economics
Volume32
Issue number6
DOIs
Publication statusPublished - Sep 2011
MoE publication typeA1 Journal article-refereed

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