A Field Study of the Impact of Changes to a Net Sales-Based Incentive Plan and Centralized Inventory Management : Consequences of the Mandatory Adoption of the Taiwanese New

Although previous studies have addressed the interrelated nature of organizational design choices for business units — delegation of operational decisions, performance measures choices in compensation, and delegation of accounting decisions, they rarely highlight the associated performance consequences. Using data from the 78 retail stores of a field company's accounting records during the period of January 2013 to December 2014, this study examines how a salesforce reacts to changes made in performance measure choices in contracting and authority over inventory decisions after the mandatory adoption of the Taiwanese new Statement of Financial Accounting Standards No. 10, which increases the visibility of huge inventory costs, and whether the underlying changes led to improvements in gross profit percentage, and in reducing losses on inventory valuation. In particular, the field firm switched from a sales-based incentive plan with a decentralized inventory structure (i.e., the original system) to a net sales-based incentive plan combined with centralized inventory systems (i.e., the new system). Under a net sales-based incentive plan, the salesforce could receive bonuses only if losses on inventory valuation were deducted from the sales revenue. The empirical evidence substantiates our hypotheses that the introduction of a new system leads to an increase in gross profit of retail stores, and to a decrease in losses on inventory valuation. These findings demonstrate the regulatory restriction on inventory valuation rules as a crucial, but under explored factor that influences organizational designs for salesforce management