This paper examines how sales managers, acting as agents of the firm, game the staffing and incentives of their subordinates. Sales managers on a quota’s cusp have a unique personal incentive to retain and lower quotas for poor-performing subordinates, allowing one to isolate a manager’s interest from the firm’s. Using microdata from 244 firms that subscribe to a cloud-based service for processing sales compensation, I estimate that 13%–15% of both quota adjustments and retentions among poor performers are explained by managers’ incentives around quotas. Although a minority of poor performers are subsequently terminated or transferred, most are retained indefinitely.

We propose a simple model of racial bias in hiring that encompasses three major theories: taste-based discrimination, screening discrimination, and complementary production. We derive a test that can distinguish these theories based on the mean and variance of workers’ productivity under managers of different pairs of races. We apply this test to study discrimination at a major U.S. retailer using data from 48,755 newly hired commission-based salespeople. White, black, and Hispanic managers within the same store are significantly more likely to hire workers of their own race, consistent with all three theories. For black–Hispanic pairs, productivity variance is lower for same-race pairs than cross-race pairs, implying that screening discrimination dominates. For white–Hispanic pairs, mean productivity is higher for same-race pairs, indicating a combination of screening discrimination and complementary production. For white–black pairs, biased hiring implies the presence of discrimination, but productivity results suggest the effects of the three forms of discrimination offset one another.

We show that subjective assessments of employee “potential” contribute to gender gaps in promotion and pay. Using data on 29,809 management-track employees from a large retail chain, we find that women receive substantially lower potential ratings despite receiving higher performance ratings. Differences in potential ratings account for approximately half of the gender promotion gap. Women’s lower potential ratings do not reflect accurate forecasts of future performance: Women subsequently outperform male colleagues, both on average and on the margin of promotion. We highlight two mechanisms driving the gender potential gap: strategic retention and stereotyping.