Rajiv D. Banker* Seok-Young Lee** Jose M. Plehn-Dujowich*

Slides:

Advertisements

Similar presentations

Pay and Performance Employment Contract Motivating workers

Advertisements

Lecture 17 Gaynor and Pauly - JPE 1990 © Allen C. Goodman, 2012.

Chapter 15: Performance Evaluation and Compensation

Moral hazard and contracts

Vicki Curtis, Jeremy Wei, Jordan Hill, Cody Rice.

Stakeholder Awareness in Sustainable Construction Gunther Maier, Sabine Sedlacek.

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Cost Allocation: Theory Chapter Seven.

Employee Screening: Theory and Evidence Fali Huang Peter Cappelli SESS, SMU Wharton, UPenn Dec. 18, 2006.

Evidence from REITS Brent W. Ambrose (The Pennsylvania State University), Shaun Bond (University of Cincinnati), & Joseph Ooi (National University of Singapore)

Compensation & Incentives: Practice vs. Theory. Baker, Jensen & Murphy’s primary concern: Research evidence suggests that, contrary to many firms’ claims.

Management Motivation Theories

Managerial Economics and Organizational Architecture, 5e Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. Managerial Economics.

Managerial Economics and Organizational Architecture, 5e Managerial Economics and Organizational Architecture, 5e Chapter 15: Incentive Compensation McGraw-Hill/Irwin.

1 Business Economics I Coordination through Contracts II.

Chapter 1: Managers, Profits, and Markets McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

Any Questions from Last Class?. Chapter 18 Getting Employees to Work in the Best Interests of the Firm COPYRIGHT © 2008 Thomson South-Western, a part.

Contracts for Make-to-Stock/Make-to-Order Supply Chains

Game Theory “A little knowledge is a dangerous thing. So is a lot.” - Albert Einstein Topic 7 Information.

Asymmetric Information

Property Rights and Collective Action in Natural Resources with Application to Mexico Lecture 1: Introduction to the political economy of natural resources.

© 2006 Pearson Education Canada Inc.9-1 Conflict Resolution Game Theory Agency Theory.

12-1 Incentives for Managers and Executives 12-1.

Essential Standard 2.00 Understand business organization and management. 1.

Any Questions from Last Class?. Chapter 17 The Problem of Moral Hazard COPYRIGHT © 2008 Thomson South-Western, a part of The Thomson Corporation. Thomson,

Adverse Selection or Moral Hazard Rick’s Iron Skillet on South School changed formats and now offers a lunch buffet. The management has noticed that the.

Explaining Organizational Diseconomies of Scale in R&D: Agency Problems and the Allocation of Engineering Talent, Ideas, and Effort by Firm Size Explaining.

The Moral Hazard Problem Stefan P. Schleicher University of Graz

2.02 Understand the leadership and management..  Management is the process of accomplishing the goals of an organization through the effective use of.

Company LOGO Essential Standard 2.00 Understand business organization and management. 1.

This slideshow was written by Ken Chapman, but is substantially based on concepts from Managerial Economics and Organizational Architecture by Brickley.

On Loan Sales, Loan Contracting, and Lending Relationships Steven Drucker Columbia Business School & Manju Puri Fuqua School of Business, Duke University.

IRWI N Pay for Individual Contributions ©a Times Mirror Higher Education Group, Inc., company, 1997 © Nancy Brown Johnson, 1999.

Company LOGO Control: Organizational and Economic Approaches Kathleen M. Eisenhardt Department of Industrial Engineering and Engineering management, Stanford.

© John Wiley & Sons, 2005 Chapter 15: Performance Evaluation and Compensation Eldenburg & Wolcott’s Cost Management, 1eSlide # 1 Cost Management Measuring,

Essential Standard 2.00 Understand business organization and management. 1.

Intended and Unintended Consequences of Continuous Auditing & Performance-Based Incentives on Managers’ Judgments Presented by: Elaine Mauldin Co-Authors:

Contracting The incentives of the employer (principal) and employee (agent) are different. A contract is designed to implement an outcome both parties.

Vertical Restraints/contracts – try to replicate the outcome of vertical integration Non-linear pricing, p and fixed fee Exclusive dealing or exclusive.

Lecture 5 Financial Incentives This lecture is paired with our previous one that discussed employee benefits. Here we focus on the reasons why monetary.

CHAPTER SEVEN Cost Allocation: Theory. McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-2 Outline of Chapter 7 Cost Allocation:

ECO 340: Micro Theory Optimal Contracts Sami Dakhlia U. of Southern Mississippi

* As played by George Clooney

Business-to-Business Marketing Sales Force Design and Management

1 Incentives and Agency Besanko, Dranove, Shanley, and Schaefer Chapters 14 and 15.

The Role of Core Confidence Higher-Order Construct in Self-Regulation of Performance and Attitudes: Evidence from Four Studies Alex Stajkovic, Dongseop.

Economics 410 Managerial Economics Sunday September 26, 1999.

AGENCY AND PERFORMANCE MEASUREMENT. The Principal/Agent Framework Agency Problem/Agency Conflict : # Principal's objection is to maximize value its receive.

Pay for Individual Contributions © Nancy Brown Johnson, 2004.

1 Copyright © 2008 Cengage Learning South-Western. Mowen/Hansen Profit Planning Chapter Seven Fundamental Cornerstones of Managerial Accounting.

Milgrom and Roberts (1992): Chapter 6 Economics, Organization & Management Chapter 6: Moral Hazard and Performance Incentives Examples of Moral Hazard:

Chapter 1: Managers, Profits, and Markets

BEC 30325: MANAGERIAL ECONOMICS

Incentive Conflicts and Contracts

“Explaining the Swollen Middle: Why Most Transaction are a Mix of ‘Market’ and ‘Hierarchy’,” Organization Science 4(4): Hennart,

Executive Compensation

Joe Mahoney University of Illinois at Urbana-Champaign

Managers, Profits, and Markets

The Nature of Personal Selling

Control: Organizational and Economic Approaches

Production, Information Costs, and Economic Organization

Managers, Profits, and Markets

Cumming and Johan (2013 Chapter 15)

Corporate Governance 2. THEORY.

Labor economics Why is labor behaviorally interesting?

Game Theory Fall Mike Shor Topic 7.

Chapter 1: Managerial Economics Managers, Profits, and Markets

Managers, Profits, and Markets

Risk or Loss Aversion? Evidence from Personnel Records

SMS -- The Sales Management Simulation

Presentation transcript:

The Impact of Monitoring versus Monetary Incentives on Retail Sales Productivity Rajiv D. Banker* Seok-Young Lee** Jose M. Plehn-Dujowich* *Fox School of Business, Temple University **Sungshin Women’s University, South Korea November 11, 2018 November 11, 2018 1

Monetary Incentives Monetary incentives serve two functions Motivate effort: resolve moral hazard (MH) (Jensen and Meckling, 1976; Holmstrom, 1979) Serve as screening device: resolve adverse selection (AS) (Murphy, 1986; Milgrom and Roberts, 1992) Evidence is mixed as to their effectiveness Positive (Banker et al., 1996a, 1996b) Insignificant (Cravens et al., 1993) Negative (Challagalla and Shervani, 1996) November 11, 2018

Monitoring Role of monitoring in agency theory Monitor effort to alleviate MH (Basu et al., 1985; Lal and Srinivasan, 1993; Joseph and Thevaranjan, 1998; Slater and Olson, 2000; Lambert, 2001) Role of monitoring in organizational (behavior-based) control theory Monitoring not as effective when have low task programmability (Anderson and Oliver, 1987; Eisenhardt, 1985, 1988; Ouchi, 1979) Creativity dampened by monitoring (Deci et al., 1989; Oldham and Cummings, 1996; Zhou, 2003) November 11, 2018

Outline of Presentation Principal-agent model with MH, which predicts: Monitoring improves performance Monetary incentives improve performance Marginal benefit of monitoring diminishes when have monetary incentives Optimal level of monitoring is greater when have no monetary incentives Evidence from chain of department stores, half of which use monetary incentives First stage: DEA analysis Second stage: OLS regressions of sales productivity agree with model’s predictions November 11, 2018

A Principal-Agent Model with MH Risk-neutral manager hires risk-averse salesperson Salesperson exerts two types of effort Routine: Creative: Sales productivity: Monitoring signal: Greater monitoring increases precision: Timing of the game Stage 1: Manager sets level of monitoring m Stage 2: Manager designs compensation scheme Stage 3: Salesperson exerts effort November 11, 2018

Compensation Schemes No monetary incentives Monetary incentives Contract on monitoring signal: Performance Sales productivity: Profits of manager: Monitoring improves performance: Monetary incentives Contract on monitoring signal & sales productivity: November 11, 2018

Monitoring vs. Monetary Incentives Monetary incentives improve performance Sales productivity: Profits of manager: Marginal benefit of monitoring diminishes when have monetary incentives, if creative effort is important: Thus, optimal level of monitoring is greater when have no monetary incentives November 11, 2018

Sample and Variables Dataset: chain of mid-end department stores, each store is a decision-making unit (DMU), 60 months 10 stores offer sales commission 10 control stores in same geographic region do not Two-stage estimation (Banker and Natarajan, 2008) First stage: DEA analysis of sales productivity (Banker, Charnes, and Cooper, 1984) Output: store SALES Inputs: total selling HOURS, store SIZE, average INVENTORY Second stage: perform OLS regression of DEA scores MONITORING = managerial hours/total selling hours MONINCENT dummy = 1 if have sales commission November 11, 2018

November 11, 2018

November 11, 2018

November 11, 2018

November 11, 2018