The Impact of Incentives When Outsourcing

Information distortion is also observed in threshold incentives offered by companies to their sales staff. Under these incentives, staff is offered rewards for crossing sales thresholds during a specified period of time (e.g., a quarter). The problem observed is that sales effort and orders peak during the last few weeks of the quarter, as salespeople try to cross the threshold. This pattern, in which sales peak close to the end of the evaluation period, is referred to as the hockey stick phenomenon. This information distortion arises because the incentive is offered over a fixed time period, making the last few weeks of each quarter a period of intense activity for all sales staff. 

Supply chain incentives can have unintended consequences when the third party s information and actions are hard to observe. It is important to understand and address the negative consequences of these incentives. 

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