Non-Linear Incentives, Worker Productivity, and Firm Profits: Evidence from a Quasi-Experiment

Using administrative data from a major Chinese insurance firm that raised its sales targets and rewards for agents in highly non-linear incentive system, we find the improvement productivity far outweighed costs associated with bunching distortions other gaming behaviors. Labor turnover decreased, which suggests extra pay workers exceeded non-pecuniary cost of effort by workers, thus improved their well-being. The gained about two-thirds higher net output, making reform profitable. Analysis systems should accordingly focus more on productivity-enhancing than distortionary effects.