Delegation and Pay-for-performance: Evidence from Industrial Sales Force

Mrinal Ghosh (University of Arizona)
Francine Lafontaine (University of Michigan)
Desmond Lo (Santa Clara University)

Abstract: Theory suggests that pay-for-performance incentives need to be aligned with appropriate levels of delegation. Empirical research on the extent of delegation, and on the relationship between delegation and pay-for-performance, remains scarce, however. We offer evidence regarding these in the context of industrial sales forces. Consistent with theory, we find that sales people are given more pricing authority when they have superior local information, but less pricing authority when the need for coordination within the firm is greater. Our data also show that managers give more pricing authority to sales people who are more experienced. Most importantly, we find that sales persons’ pay-for-performance is positively and robustly related to the level of delegation of pricing authority.

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