Journal
JOURNAL OF ACCOUNTING & ECONOMICS
Volume 30, Issue 3, Pages 315-350Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/S0165-4101(01)00016-7
Keywords
salesforce compensation; pay-for-performance; self-selection; incentive plans; moral hazard; productivity improvement
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Performance improvements subsequent to the implementation of a pay-for-performance plan can result because more productive employees self-select into the firm (selection effect) and because employees allocate effort to become more effective (effort effect). We analyze individual performance data for 3,776 sales employees of a retail firm to evaluate these alternative sources of continuing performance improvement. The incentive plan helps the firm attract and retain more productive sales employees, and motivates these employees to further improve their productivity. In contrast, the less productive sales employees' performance declines before they leave the firm. (C) 2001 Elsevier Science B.V. All rights reserved.
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