Incentives versus Reciprocity: Insights from a Field Experiment

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 sales force 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; however, it may lead to lower future performance. We find little evidence that effectiveness differs between a quota-bonus plan and a 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 of which the effectiveness decreases with repeated exposure. We also find heterogeneity in the impact of compensation on performance across salespeople; unconditional compensation is more effective for salespeople with high base performance, whereas conditional compensation is equally effective across all types of salespeople.