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Non-linear Incentives and Worker Productivity and Earnings: Evidence from a Quasi-experiment

Richard Freeman (), Wei Huang () and Teng Li ()

No 25507, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms often use non-linear incentive systems to motivate workers to achieve specified goals, such as paying bonuses to reach targets in sales, production, or cost reduction. Using administrative data from a major Chinese insurance firm that raised its sales targets and rewards for insurance agents greatly in 2015, we find that increased incentives induced agents to increase sales of the increasingly incentivized life insurance products, bunched around the new targets, albeit in part with some low quality sales that led to canceled contracts, while reducing sales of products out-side the new incentive system. The greater non-linear incentives raised agent incomes and low-ered turnover and substantially increased firm revenues net of the increase in payments to agents. The stock market reacted to the new system with a jump in the firms’ share price relative to its main competitor by 15-20% in the days surrounding introduction of the new system.

JEL-codes: J00 J22 J3 M5 M52 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-bec, nep-cta, nep-hrm, nep-ias, nep-lma and nep-tra
Note: LS
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