Evaluating a Performance Pay
Abstract
Motivating workers is a fundamental need for businesses across industries. Economic theory of performance pay tells us that people respond to monetary incentives, when the incentive is modeled appropriately for the desired outcome. I worked with a freight brokerage firm whose incentive plan provided little to no motivation for workers to perform well. On February 1st 2015, the company put a new incentive plan in place better modeled toward increasing margin per shipment. Using shipment history data from the company’s transportation management system from 1/1/2014-3/31/2015, I use a pre/post analysis comparing the average margin per shipment for shipments before February 1st and after. Using OLS regression, I control for several variables that can also impact margin per shipment including customer, sales rep and shipment size. Preliminary findings show that the average margin per shipment has increased for the period of time after the plan was put in place.
Evaluating a Performance Pay
Motivating workers is a fundamental need for businesses across industries. Economic theory of performance pay tells us that people respond to monetary incentives, when the incentive is modeled appropriately for the desired outcome. I worked with a freight brokerage firm whose incentive plan provided little to no motivation for workers to perform well. On February 1st 2015, the company put a new incentive plan in place better modeled toward increasing margin per shipment. Using shipment history data from the company’s transportation management system from 1/1/2014-3/31/2015, I use a pre/post analysis comparing the average margin per shipment for shipments before February 1st and after. Using OLS regression, I control for several variables that can also impact margin per shipment including customer, sales rep and shipment size. Preliminary findings show that the average margin per shipment has increased for the period of time after the plan was put in place.