Publication Date: March 2018
At many ﬁrms, incentivized salespeople with private information about customers are responsible for CRM. While incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the ﬁrm. We investigate the sales performance–moral hazard tradeoﬀ in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microﬁnance bank, we detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative eﬀects of acquiring low-quality customers on future payoﬀs. Critically, without the moderating eﬀect of maintenance incentives, adverse selection eﬀect of acquisition incentives overwhelms the sales enhancing eﬀects, clarifying the importance of multidimensional incentives for CRM. Reducing private information (through job transfers) hurts customer maintenance, but has greater impact on productivity by moderating adverse selection at acquisition. The paper also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identiﬁcation strategy that exploits the time-varying eﬀects of salesperson incentives.
Salesforce compensation, CRM, Private information, Adverse selection, Moral hazard