Doug J. Chung

Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans

We estimate a dynamic structural model of sales force response to a bonus-based compensation plan. This paper provides substantive insight into how different elements of the compensation plan enhance productivity. We find evidence that 1 bonuses enhance productivity across all segments; 2 overachievement commissions help sustain the high productivity of the best performers, even after attaining quotas; and 3 quarterly bonuses help improve performance of the weak performers by serving as pacers to keep the sales force on track in achieving its annual sales quotas. The paper also introduces two main methodological innovations to the marketing literature: First, we implement empirically the method proposed by Arcidiacono and Miller [Arcidiacono P, Miller RA 2011 Conditional choice probability estimation of dynamic discrete choice models with unobserved heterogeneity. Econometrica 796:1823--1867] to accommodate unobserved latent-class heterogeneity using a computationally light two-step estimator. Second, we illustrate how discount factors can be estimated in a dynamic structural model using field data through a combination of 1 an exclusion restriction separating current and future payoff and 2 a finite-horizon model in which there is no forward-looking behavior in the last period.

The Dynamic Advertising Effect of Collegiate Athletics

I measure the spillover effect of intercollegiate athletics on the quantity and quality of applicants to institutions of higher education in the United States---an effect popularly known as the “Flutie effect.” I treat athletic success as a stock of goodwill that decays over time, similar to that of advertising. A major challenge is that privacy laws prevent us from observing information about the applicant pool. I overcome this challenge by using order statistic distribution to infer applicant quality from information on enrolled students. Using a flexible random-coefficients aggregate discrete choice model that accommodates heterogeneity in preferences for school quality and athletic success, as well as an extensive set of school fixed effects to control for unobserved quality in athletics and academics, I estimate the impact of athletic success on applicant quality and quantity. Overall, athletic success has a significant, long-term goodwill effect on future applications and quality. However, students with lower-than-average SAT scores tend to have a stronger preference for athletic success, whereas students with higher SAT scores have a greater preference for academic quality. Furthermore, the decay rate of athletics goodwill is significant only for students with lower SAT scores, suggesting that the goodwill created by intercollegiate athletics resides more extensively with lower-scoring students than with their higher-scoring counterparts. But, surprisingly, athletic success impacts applications even among academically stronger students.

Incentives versus Reciprocity: Insights from a Field Experiment

The authors conduct a field experiment in which they vary the sales force compensation scheme at an Asian enterprise that sells consumer durable goods. With variation generated by the experimental treatments, the authors model sales force performance to identify the effectiveness of various forms of conditional and unconditional compensation. They account for salesperson heterogeneity using a hierarchical Bayesian framework to estimate the model. They find conditional compensation in the form of quota bonus incentives to improve performance; however, such compensation may lead to lower future performance. The authors find little difference in effectiveness between a quota bonus plan and punitive bonus plans framed as a penalty for not achieving quota. They find that unconditional compensation, in the form of reciprocity, is effective at improving sales force performance only when it is given as a delayed reward; however, the effectiveness of this plan decreases with repeated exposure. The authors also find heterogeneity in the impact of compensation on performance across salespeople, such that unconditional compensation is more effective for salespeople with high base performance, whereas conditional compensation is equally effective across all types of salespeople.

How Much Is a Win Worth? An Application to Intercollegiate Athletics

Intercollegiate athletics in the United States have become a multibillion-dollar industry over the past several decades. In this study, we investigate the short- and long-term direct monetary effects of operating a winning athletics program for an academic institution of higher education. We construct a unique panel data set from multiple sources and utilize the latest dynamic panel data estimation methods to account for heterogeneity while also addressing endogeneity concerns. We find that success in men’s football and basketball has a significant impact on a school’s respective football and basketball revenues; however, the effect is different based on the type of school. We find that regular season wins in football account for most of the increase in revenue for established schools, whereas invitations to prestigious postseason bowl games play a big part for less-established schools. Furthermore, we find that student population and education quality dissipate the effect of athletic success on monetary payoffs. We find that success in basketball carries over more from the past than in football with additional contemporaneous marginal effects for established schools. We do find, however, that past athletic success carries over significantly to the present in both football and basketball, suggesting the significance of the long-term monetary effect of athletic success to many academic institutions in the United States. This paper was accepted by Pradeep Chintagunta, marketing .