Working Paper: NBER ID: w25135
Authors: Jason Sandvik; Richard Saouma; Nathan Seegert; Christopher Stanton
Abstract: Firms rarely cut compensation, so little is known about the after-effects when compensation reductions do occur. We use commission reductions at a sales firm to estimate how work effort and turnover change. In response to an 18% decline in sales commissions, corresponding to a 7% decline in median take-home pay, we find turnover increases for the most productive workers. We detect limited effort responses. Turnover and effort responses do not differ based on workers' survey replies regarding expectations of firm fairness or future promotion. The findings indicate that adverse selection concerns on the extensive margin of retaining workers drive the empirical regularity that firms rarely reduce compensation.
Keywords: No keywords provided
JEL Codes: J3; J30; J41; J42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in sales commissions by 18% (L81) | Significant increase in turnover among the most productive workers (J29) |
| Significant increase in turnover among the most productive workers (J29) | 4% reduction in sales over the next five months (F17) |
| Reduction in sales commissions by 18% (L81) | 4% reduction in sales over the next five months (F17) |
| Perceptions of fairness and promotion (M51) | Effort or turnover responses (J63) |