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Department of Economics, University of Bergen Working Papers in Economics, Department of Economics, University of Bergen

No 12/06:
Pay and performance in a customer service centre - principal and agents or principally angels?

Karl Ove Aarbu () and Gaute Torsvik ()

Abstract: We have followed a pay for performance reform in the phone based customer service centre of an insurance company, from its introduction in 2001 until the end of 2004. We use hard and soft data from the design and impact of the reform to contrast two theories of work motivation; the traditional self interest hypothesis that the principal-agent model builds on, with the hypothesis that fairness and reciprocity are significant motivational forces at workplaces. The reform was initiated to increase sales of insurance in the customer service centre and it gave the operators both economic incentives and fairness- and reciprocity incentives to increase their sales effort. The reform had a positive effect on sales; the operators answered more calls and sold insurance to a higher fraction of customers after the reform. This observation alone does not help us identify the importance of the motivational hypothesis we compare. However, when we look closer at the evolution of the design and impact of the payment plan, we conclude that our data correspond best with the standard principal-agent model.

Keywords: Team incentives; multitask; fairness; reciprocity.; (follow links to similar papers)

JEL-Codes: C23; C72; J33; M52; (follow links to similar papers)

36 pages, August 1, 2006

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