Drawing on goal-setting theory, this study develops a new self-selected incentive scheme. Within this scheme, a sales employee chooses an individualized goal–reward level combination from a menu the firm proposes given the employee's past performance. To test the effects of the self-selected incentive scheme, the authors conducted two field experiments at two Fortune 500 companies. Results of both experiments show that, compared with two equivalent quota systems, sales employees’ performance increased substantially under the self-selected incentive scheme. In addition, findings reveal that the performance increase induced by this scheme is substantially greater for sales employees with a high variation in past performance and for employees with a low past-performance level. Moreover, the authors find that the effects of the self-selected incentive scheme not only are durable when offered again but also persist after the scheme is discontinued. Through two additional online experiments, the authors extend the findings of the field studies, isolate the self-selected incentive scheme's three underlying mechanisms, and examine each mechanism's relative strength.
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