When Do Group Incentives for Salespeople Work?

Abstract

When should sales managers employ group incentives rather than individual incentives to motivate their sales force? Using economic experiments, the authors show that two-person group incentives can outperform individual incentives and that the relative efficacy of group incentives depends on three important factors. First, the strength of social ties among the group members matters. Effort decisions in group-based incentives increase significantly when members socialize briefly before committing effort. Second, the design of the group incentive matters. For the group incentive to work better than the individual incentive, the group-based component (i.e., how much the payment scheme weights the contribution of others) in the former cannot be too large. Third, the informational feedback that group members receive matters. When socialized group members can observe one another's true effort, rather than only their output, effort surprisingly decreases. The authors show that a model that accounts for social preferences and the psychological loss that occurs when teammates underestimate one's effort can explain salesperson behavior in group incentives well.

Walking Parallel Paths or Taking the Same Road? The Effect of Collaborative Incentives in Innovation Contests

“…Our results support the existing literature on collaboration, which shows that people enjoy actively participating in group tasks (Füller, 2010;von Hippel and von Krogh, 2006). Lim and Chen (2014) argue that in order for group-based payment to work, it is important that members are able to interact and socialize. In collaborative compared to competitive settings, the collective effort increases: more comments, more constructive feedback and more likes are given.…”

Behavioral biases in marketing

“…As rational agents only include their own payoffs in the utility, following the standard model assumptionsi.e., individual incentives for the sales force personnelshould be most efficient. In contrast, Lim and Chen (2014) find that in certain situations, e.g., in the case of strong social ties among the (two) group members, group incentives can be more effective. Notably, this is the case if the payment scheme puts less focus on the contribution of each teammate and if group members cannot accurately observe the amount of effort of other group members.…”

“…Dubé, Luo, and Fang (2017) explain these results with a self-signaling effect: consumers update their own beliefs about themselves, and price discounts crowd out the self-inference of altruism (Benabou and Tirole 2006). Lim and Chen (2014) investigate the role of social preferences in sales force incentives, which subsequently lead to better face-to-face communication with the customer. As rational agents only include their own payoffs in the utility, following the standard model assumptionsi.e., individual incentives for the sales force personnelshould be most efficient.…”

Why helping coworkers does not always make you poor: The contingent role of common and unique position within the sales team

“…As such, it expands research on salesperson performance in group settings that has ignored the interplay between individual salesperson's prosocial behavior, individual characteristics, and team structure (e.g., Ahearne, MacKenzie, et al, 2010;Lim & Chen, 2014;Schmitz, 2013). To address this void, we developed and tested a framework based on the MOA framework (MacInnis et al, 1991) and insights from the social identity theory and social network literatures (e.g., Agneessens & Wittek, 2011) examining the impact of salesperson's work group identification (i.e., motivation), dispersion of job experience within the work group (i.e., opportunity), and salesperson's relative job experience level (i.e., ability) on helping behaviors and its effect on own performance.…”