Relative Performance Evaluation and the Ratchet Effect

Casas‐Arce, Pablo; Holzhacker, Martin; Mahlendorf, Matthias D.; Matějka, Michal

doi:10.1111/1911-3846.12385

Cited by 32 publications

(23 citation statements)

References 60 publications

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“…Consistent with this prediction, Casas‐Arce et al. [] show that higher peer group quality is associated with greater weight on past peer performance and lower weight on past own performance in target updating. Bol and Lill [] show that the weight on past own performance is decreasing in volatility of own performance.…”

Section: Prior Literature and Hypothesesmentioning

confidence: 82%

“…Casas‐Arce et al. [] show that RTS strengthens incentives not only by filtering out noise but also by alleviating the ratchet effect. In particular, if target revisions are relatively more sensitive to past peer performance and relatively less sensitive to past own performance, managers are less concerned that greater effort will make future targets more difficult to achieve (Weitzman [], Leone and Rock [], Bouwens, Cardinaels, and Zhang []).…”

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

“…However, only a few recent studies examine RTS or the extent to which target revisions depend on past peer performance (Aranda, Arellano, and Davila [], Bol and Lill [], Casas‐Arce et al. []). The empirical evidence is consistent with the theory that past peer performance has information content above and beyond past own performance and therefore can be used to filter out noise from performance evaluations (Holmström []).…”

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

“…In settings where past own and peer performance are the main sources of information for target updating purposes, we also expect a spillover effect on the weight on past own performance because the two sources of information act as substitutes in predicting future performance (Meyer and Vickers [], Casas‐Arce et al. []). In other words, an increase in the importance of cooperation should lead to a lower sensitivity of targets to past peer performance but also to an off‐setting increase in the sensitivity to past own performance to make targets more accurate.…”

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

“…Similar noise‐filtering benefits also apply to RTS as long as shocks to performance are persistent and correlated among peers (Casas‐Arce et al. []). An additional benefit of RTS is that it reduces sensitivity of targets to past own performance and consequently alleviates the ratchet effect (Weitzman [], Meyer and Vickers []).…”

Section: Introductionmentioning

confidence: 98%

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Relative Target Setting and Cooperation

Holzhacker

Kramer

Matějka

et al. 2018

J of Accounting Research

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A large stream of work on relative performance evaluation highlights the benefits of using information about peer performance in contracting. In contrast, the potential costs of discouraging cooperation among peers have received much less attention. The purpose of our study is to examine how the importance of cooperation affects the use of information about peer performance in target setting, also known as relative target setting. Specifically, we use data from an industrial services company where business unit managers need to share specialized equipment and staff with their peers to manage bottlenecks in their capacity. We construct several empirical proxies for the costs and benefits of information about peer performance and examine their effects on target setting. We find robust evidence that the sensitivity of target revisions to past peer performance is higher when peer group performance has greater capacity to filter out noise but lower when the importance of cooperation among peers is greater.

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Section: Prior Literature and Hypothesesmentioning

confidence: 82%

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

Section: Prior Literature and Hypothesesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 98%

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Relative Target Setting and Cooperation

Holzhacker

Kramer

Matějka

et al. 2018

J of Accounting Research

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Diversity targets

Cai,

Chen,

Rajgopal

et al. 2024

Rev Account Stud

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From 2008 to 2020, 180 of S&P 1500 have disclosed employee diversity targets. We conduct the first analysis of firms’ employee diversity targets and ask three research questions: (i) who announces diversity targets? (ii) do firms deliver on their diversity targets? (iii) what are the implications of disclosure of such targets for employee hiring and investors? We find that firms with a greater willingness (proxied by past ESG penalties, higher CEO-to-median employee pay ratio, more media coverage, and after #MeToo and Black Lives Matter movements) and ability (proxied by financial strength, a blue-collar heavy labor force, and gender and ethnic minorities on boards) to improve employee diversity are more likely to disclose diversity targets. Exploiting the Revelio dataset of 15,639 firm-years for 1,203 distinct firms from 2008 to 2020, we observe that firms that disclosed a diversity target have indeed hired more diverse employees, but such diversity levels had already increased substantially prior to the target disclosure. Firms with numerical, forward-looking, and rank-and-file employee-targeted goals are associated with greater employee diversity relative to firms that announce other types of diversity goals. Moreover, improved diversity performance does not appear to occur at the cost of employee quality, as measured by Revelio. Overall our results have practical implications for how investors and stakeholders might want to interpret corporate diversity targets.

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Die Schattenseiten innerbetrieblicher Leistungsvergleiche

Holzhacker

2019

Control Manag Rev

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Als gängige Praxis der innerbetrieblichen Leistungsbeurteilung sind Leistungsvergleiche weitverbreitet und akzeptiert. Ihre Verwendung hat jedoch auch Schattenseiten, wie prominente Unternehmensbeispiele belegen. Eine Untersuchung zeigt, unter welchen Gegebenheiten Leistungsvergleiche wertstiftend sind und wann besser auf sie verzichtet werden sollte. Martin Holzhacker Leistungsvergleiche sind eine beliebte und weitverbreitete Grundlage für die Leistungsbewertung von Mitarbeitern. Dennoch sind sie in der Vergangenheit in Verruf geraten. Zahlreiche Berichte aus Unternehmen legen nahe, dass sie Gift sein können für Innovationen und die Unternehmenskultur, da sie in einem Spannungsfeld zwischen einem gesunden Wettbewerb unter den Mitarbeitern einerseits und einem destruktiven Einfluss auf die Zusammenarbeit andererseits stehen. Durch die zunehmende Bedeutung kreativer Zusammenarbeit scheinen Leistungsvergleiche aus einer anderen Zeit zu stammen. "Rank and Yank": ein Relikt eines längst antiquierten Führungsstils? Jack Welch war mehr als 20 Jahre Vorstandsvorsitzender des amerikanischen Mischkonzerns General Electric (GE) und ein großer Verfechter des sogenannten "Rank and Yank". Hierbei werden die Mitarbeiter einer Abteilung von ihrem Vorgesetzten anhand ihrer Leistung gerankt. Die Leistungsvergleiche hatten bei GE weitreichende Konsequenzen: Die Top 20 Prozent wurden als Mitarbeiter mit Entwicklungspotenzial identifiziert, ge-und befördert. Den unteren zehn Prozent dagegen wurde mehr oder weniger direkt der Job-Zusammenfassung • Leistungsvergleiche bieten eine verbesserte Informationsgrundlage zur Leistungsbeurteilung, sie fördern den Wettbewerb.• Einige Unternehmen haben allerdings schlechte Erfahrungen mit der Verwendung von Leistungsvergleichen zur Leistungsbeurteilung gemacht und diese abgeschafft.

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Relative Performance Evaluation and the Ratchet Effect

Cited by 32 publications

References 60 publications

Relative Target Setting and Cooperation

Relative Target Setting and Cooperation

Diversity targets

Die Schattenseiten innerbetrieblicher Leistungsvergleiche

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