A field study of the impact of a performance-based incentive plan

TLDR

Management accounting research largely examines incentive contract design, premised on the belief that performance-based incentives enhance employee performance. This study tests the multi-period effects of a performance-based compensation plan on retail sales in a field setting. The incentive plan raised sales, with gains increasing over time, but the effect was significantly smaller during peak season when more temporary workers were employed.

Abstract

Much management accounting research focuses on design of incentive compensation contracts. A basic assumption in these contracts is that performance-based incentives improve employee performance. This paper reports on a field test of the multi-period incentive effects of a performance-based compensation plan on the sales of a retail establishment. Analysis of panel data for 15 retail outlets over 66 months indicates a sales increase when the plan is implemented, an effect that persists and increases over time. Sales gains are significantly lower in the peak selling season when more temporary workers are employed.