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Title:Optimizing incentive plan design: A case study PDF Logo
Authors:Levenson, Alec
Zoghi, Cindy
Gibbs, Michael
Benson, George
Issue Date:2011
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5985
Abstract:We study effects of a firm's attempt to optimize an existing incentive scheme to increase sales growth for direct store delivery workers. Before optimization workers reported Ratchet Effects that lowered productivity. The altered incentive plan offered higher compensation for increased sales relative to a sales growth target, and lower compensation for failing to meet the target. We gathered data on performance and attitudes at pilot and control sites before and after the change. Relative to control sites, sales growth increased in the pilot sites by two percent, a meaningful contribution to firm profits. We find no change in distortion of effort or manipulation of the performance measure. Workers did not substantially change number of hours worked, though allocation of time across tasks changed slightly. Despite increased productivity, workers continued to report Ratchet Effects after the change. We also find that an unplanned price increase midway through a fiscal year affected the extent of Ratchet Effects that year.
Subjects:incentives
ratchet effect
JEL:M52
J33
M12
L81
Persistent Identifier of the first edition:urn:nbn:de:101:1-20111011201
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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