Incentives, Gaming, and the Nonlinear Pay Scheme: Evidence from Personnel Data in a Large Japanese Auto Sales Firm

This paper examines incentives and gaming behavior in a sales workforce using personnel records from one of Japan's largest auto sales chains. The company replaced a simple, linear compensation system in 2000 with nonlinear pay scheme kinked around a draw line. Econometric analysis indicates the following. First, the new pay scheme yields productivity increases, although a month-end deadline induces gaming behavior. Second, the incentive effect is weaker for used car sales staff than for new car sales staff. The difference can be attributed to disincentives such as smaller gross profits and larger servicing burdens that discouraged workers near the threshold from putting forth additional effort.