Do bonuses enhance sales productivity?
Subtitle: a dynamic structural analysis of bonus-based compensation plans
By: Doug J. Chung, Thomas Steenburgh, K. Sudhir
Contributors: Steenburgh, Thomas J.; Sudhir, K.; Harvard Business School
Series: Working paper / Harvard Business School -- 13-066; Working paper (Harvard Business School) -- 13-066
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston]
Language: eng
Number of pages: 43
Description: We estimate a dynamic structural model of sales force response to a bonus based compensation plan. Substantively, the paper sheds insights on how different elements of the compensation plan enhance productivity. We find evidence that (1) bonuses enhance productivity across all segments, (2) overachievement commissions help sustain the high productivity of the best performers even after attaining quotas, and (3) quarterly bonuses help improve performance of the weak performers by serving as pacers to keep the sales force on track to achieve their annual sales quotas. The paper also introduces two main methodological innovations to the marketing literature: first, we implement empirically the method proposed by Arcidiacono and Miller (2011) to accommodate unobserved latent class heterogeneity using a computationally light two-step estimator. Second, we illustrate how discount factors can be estimated in a dynamic structural model using field data through a combination of (1) an exclusions restriction separating current and future payoff and (2) a finite horizon model in which there is no forward looking behavior in the last period.
Notes: "January 2013"--Publisher's Web site.

Includes bibliographical references (pages 27-29).