The Impact of Negative Compensation Changes on Individual Sales Performance

This study examines the impact of a reduction in compensation on individual sales performance over time. Sales performance data over a two-year time period were obtained for individuals who remained with their organization after experiencing a reduction in compensation. Using labor economic theory, this study examines how negative compensation changes affect performance and whether individuals’ pay levels affect their reactions to a negative change in pay. To examine these questions, the study uses an interrupted time series with a nonequivalent no-treatment control group method of design. In addition, an alternative panel specification is used for verification. Data on 292 sales individuals are analyzed. The results show that in response to a reduction in compensation, individuals at high pay levels change their effort less than individuals at lower pay levels. The practical implications of these findings provide important insights into contingencies that affect the outcomes of pay-for-performance sales programs.