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Abstract
This dissertation uses data obtained from three field experiments implemented in a large retail chain in the North America to show how incentives work on individual-level performance and at the company level in a multitasking environment.
The first study highlights key differences in individual agent responses to incentives as well as the goal conflicts between agents and principals. My results suggest that incentives contain information relayed from the principal to the agents and that such information can provoke unexpected effects on behavior. This study provides novel evidence that when it comes to incentives in a multitasking environment, star performers, compared to non-star performers, will shift their efforts to more rewarding tasks as they determine that such incentives are insignificant.
The second study focuses on the impact of purely performance ranking in a business context where we have been able to disentangle task performance rankings from additional financial compensation or other career implications. The empirical analysis yielded four essential results. First, rank feedback leads to performance increases on the incentivized task. Second, the effect of rank feedback is heterogeneous across agents. These findings show that competing with others for nonmonetary rewards (pure ranking status) can have positive and significant motivational effects on agent performance, and such results are more substantial with star performers.
The third study uses data from a control field experiment executed in 2018 in collaboration with 20 stores of a national automotive retail chain. We tested basic predictions from the standard agency theory with a focus on the minimum wage-earning employees. The study is novel in that 1) it is one of the few known studies that removed performance-based incentives and switched the mixed pay scheme to a fixed salary-only system in treatment stores. Such an experiment design enables us to assess and compare the effectiveness of two different wage schemes in the treatment and control group. 2) It focuses on the minimum wage-earning employees in the labor force, instead of the boardroom member's compensation packages, which may have more generalizable managerial implications. We found evidence in contrast to what standard agency theory would have predicted: A change from pay-for-performance to a fixed salary should lead to a decline in production effort. Instead, we found that removing performance-based incentive bonuses and switching to a fixed salary lowered the employee’s monthly turnover rate, leading to improved team productivity in the treatment stores.
