Incentives and Ratcheting in a Multiproduct Firm: a Field Experiment

Abstract: We develop a model and derive behavioral predictions for a multiproduct sales force subject to goals set based on past performance. We test these predictions using a field experiment in which 53 salespersons from a Chilean beverage company face exogenous variation in monthly sales goals. Confirming our predictions we found that 1) Absent strategic considerations (no goal ratcheting), salespersons increase sales in the product category for which the return to effort increases, 2) Including strategic considerations behavior reverses, salespersons that expect high goal ratcheting decrease sales in the category for which the return to effort increases, 3) Sales did not changed for the average salespersons, reflecting heterogeneity in the expectations of goal ratcheting rather than unresponsiveness to incentives, 4) The strategic effect was less important in salespersons with lowest tenure and no long term contract, suggesting that learning and the expectation of future interaction is important for strategic behavior.