INCENTIVE SYSTEMS IN AUTOMOBILE DEALERS INDUSTRY – A CONCEPTUAL ANALYSIS WITH REGARD TO CONTRACT THEORY

ABSTRACT : Incentive systems refer to performance linked compensation paid to improve motivation and productivity of employees. They are designed to stimulate human efforts for improvement in the present and for the future goals. Despite of 100 or more years of studies on the impact of incentives, inconsistencies about their value endures. ‘Contract theory' by Oliver Hart and Bengtt Holmstrom, which received the Nobel Prize of Economics in 2016 describes about the optimal designs of incentive contracts as an utmost concern by every organization. The automobile industry in India has been on a growth trajectory with remarkable spike in sales, production and exports over the last two years. Rising affluence, easier access to finance and growing affordability is probable to see fourwheelers gaining volumes, although two wheelers will remain the primary choice for the majority of purchasers, lifted by greater appetite from rural areas, the youth market and women. The incentive contract system of the sales personnel in the automobile dealers industry is a major factor which contributes their maximum efforts and performance. The present study is attempted to do a conceptual analysis of incentive contracts in four wheeler Automobile dealers with regard to the contract theory by comparing the three major players - Honda, Renault and Maruti. KeyWords: Incentives, Contract Theory, Performance, Automobile Dealers Industry