Page 174 - HBR's 10 Must Reads - On Sales

CHUNG

As an example of one such experiment, consider recent work my
colleague Das Narayandas and I did with a South Asian company that
has a retail sales force for its consumer durable products. The com-
pany uses a simple system of linear commissions—reps earn a fixed
percentage of sales, with no quotas, bonuses, or overachievement
commissions. Managers were interested in seeing how instituting
bonuses would affect the reps’ performance, so over six months we
tested various ways to frame and time bonuses—always comparing
results against a control group.
For one of our experimental groups, we created a bonus that was
payable at the end of the week if a rep sold six units. For another
group, we framed the bonus differently, using the well-known con-
cept of loss aversion, which posits that the pain people feel from a
loss exceeds the happiness they feel from a gain. Instead of telling
reps they would receive a bonus if they sold six units, we told them
they would receive a bonus unless they failed to sell at least six units.
To test the concept even further, the company’s managers suggested
another experiment in which we paid the bonuses at the beginning
of the week and then had the reps return the money if they missed
the goal.
The results showed that all three types of bonuses exerted similar
effects and that in every case the group receiving the bonus gener-
ally outsold the control group. Loss aversion didn’t have much ef-
fect. We believe that’s partly because we were using cash, which is
liquid and interchangeable; in the future we might experiment with
noncash rewards, such as physical objects.
We also tried to measure the impact on sales reps’ effort of
cash payments that were framed as gifts (as opposed to bonuses).
Whereas bonuses are viewed as transactional, research shows that
framing something as a gift creates a particular form of goodwill be-
tween the giver and recipient. In our study we used cash but told
employees it was a gift because there were no strings attached—they
didn’t have to meet a quota to receive it. We found that the timing of
a gift directly influences how reps respond: If you give the gift at the
beginning of a period, they view it as a reward for past performance
and tend to slack off. If you tell them they will receive a gift at the

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