Platform-level consequences of performance-based commission for service providers: Evidence from ridesharing

Abstract

Ridesharing platforms compensate drivers using a fixed commission system that does not systematically reward effective drivers, which reduces platform engagement. Unsurprisingly, driver transaction activity is intermittent and service unpredictable. Influenced by agency theory, we propose a variable commission that jointly accounts for drivers’ transactions and service performance. To alleviate disengagement, we propose a customer-oriented engagement framework that challenges the notion of the sole monetary focus of drivers. We compare the effects of variable and fixed commission schemes on consequences such as driver net revenue and referral value, mediated by attitudinal outcomes. In a 3-month cluster-randomized field experiment with 3,367 ridesharing drivers across 16 cities and two population tiers, we show improvements in driver satisfaction and emotional connectedness accentuated by goal-oriented feedback. Variable commission with goal-oriented feedback translates to a 24.5% rise in revenue, a 19.5% increase in referral value, and a 43.21% lower churn. A cost–benefit analysis reinforces these results.