Subjectivity in Professionals' Incentive Systems: Differences between Promotion‐ and Performance‐Based Assessments

Bol, Jasmijn C.; Leiby, Justin

doi:10.1111/1911-3846.12393

Cited by 26 publications

(19 citation statements)

References 96 publications

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“…In a meta-analysis study by Jawahar and Williams (1997), they found that evaluators give more lenient performance ratings when the ratings are used for compensation and promotion purposes, but give more accurate and harsher feedback for developmental purposes to help workers identify and correct their performance deficiencies. In addition, Bol and Leiby (2015) provide experimental evidence that managers evaluate the same actions taken by their subordinates differently when assessing their job performance versus their promotion prospects. These findings support the notion that evaluators assess workers' performance differently depending on the purpose of the performance evaluation.…”

Section: Advantagesmentioning

confidence: 99%

Promotion, Relative Performance Information, and the Peter Principle

Chan

2017

The Accounting Review

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PROMOTION, RELATIVE PERFORMANCE INFORMATION, AND THE PETER PRINCIPLE Eric Wai Yeung Chan, PhDUniversity of Pittsburgh, 2015 My dissertation consists of two main parts. In the first part, I present my experimental study in which I examine the effects of providing workers with relative performance information (RPI) on employers' promotion decisions and the impact of those decisions on worker performance. In my experimental setting, the job after promotion requires higher-level abilities than the current job. I find that workers increase their effort to improve their current job performance after a promotion opportunity is announced because they expect this to increase their chances of promotion even though the new task requires higher-level abilities. Moreover, because employers anticipate that workers who have RPI will react negatively if they see that the best current job performer is not promoted, employers promote the best current job performer rather than the worker best suited for the next job more often when workers have RPI than when they do not. Finally, consistent with the Peter Principle, I find that the promoted worker's performance after promotion is lower when workers have RPI than when they do not because the v promoted worker lacks the ability to perform the new job well. My results suggest that providing workers with RPI can have a downside that offsets the benefits documented in previous studies.In the second part of my dissertation, I discuss how three common firm practices could potentially help firms mitigate the sorting problem I identified in my experimental study.Specifically, I discuss how the communication of the promotion criteria, group incentive plans, and subjective performance evaluation could help employers improve the sorting of workers through promotions. However, while each approach has advantages, each also has drawbacks. It appears that there is no promotion-based incentive system that provides optimal effort incentives to workers while simultaneously achieving the best match between workers and their jobs. This conflict between the incentive and sorting roles of promotion is difficult to resolve and firms must ultimately trade-off between them. INTRODUCTIONPromotions are integral to most organizations and serve two important and distinct roles (Milgrom and Roberts 1992, p.364). The first is to motivate and reward workers (incentive role) and the second is to sort workers into jobs that best match their abilities (sorting role). However, the incentive and sorting roles may conflict when the nature of the tasks changes between hierarchical job levels such that workers' performance in the current job is not fully informative about their performance in the next job. In such cases, the best performer at one level of the hierarchy is often not the best candidate for the next higher-level job.The situation described above occurs quite often, such as when salespersons are promoted to sales managers, engineers are promoted to project managers, and teachers are promoted ...

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Section: Advantagesmentioning

confidence: 99%

Promotion, Relative Performance Information, and the Peter Principle

Chan

2017

The Accounting Review

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“…Grabner and Moers [], Deller []). We proxy for promotability with supervisors’ perceptions of their subordinate's potential to be promoted to audit manager and audit partner (Bol and Leiby []) with promotability to manager (partner) being a relatively near‐term (long‐term) promotion. We test H1a by estimating the following logit model:

\begin{matrix} true \\ right p ((), italicPotential = 1) & = & left β_{0} + β_{1} italicTK italicSubordinate + β_{2} italicJob italicLevel + β_{3} italicJob italicTenure \\ left + β_{4} A g e + β_{5} Technical Performance + ε, \end{matrix}

where Potential refers to either Potential Manager or Potential Partner .…”

Section: Results: Studymentioning

confidence: 99%

“…There are, however, other important indicators of value that are less backward looking (Cappelli and Tavis []). Bonuses capture contemporaneous value and are both tangible and salient, and promotability assessments capture forward‐looking value that tend to lead to the most significant lifetime compensation increases (Grabner and Moers [], Bol and Leiby []). With these three value indicators in mind, we hypothesize the following: H1a :Inexperienced auditors with higher versus lower tacit knowledge will be more highly valued. …”

Section: Background On Tacit Knowledge and Hypothesis Developmentmentioning

confidence: 99%

“…Expanding on their one‐indicator approach, we also examine medium term and longer term promotability (cf. Grabner and Moers [], Bol and Leiby []) and shorter term bonus compensation, a tangible indicator of value (Sternberg et al. []).…”

Section: Introductionmentioning

confidence: 99%

“…Expanding on their one-indicator approach, we also examine medium term and longer term promotability (cf. Grabner and Moers [2013], Bol and Leiby [2018]) and shorter term bonus compensation, a tangible indicator of value (Sternberg et al [2000]). We examine both the main effect of inexperienced auditors' tacit knowledge and its interaction with their supervisors' tacit knowledge.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

The Role of Tacit Knowledge in Auditor Expertise and Human Capital Development

Bol

Estep

Moers

et al. 2018

J of Accounting Research

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Two critical aspects of the model of auditor expertise development in Tan and Libby [1997] are that audit firms do not value tacit knowledge in inexperienced auditors but do value it in experienced auditors. We update the former and extend the latter. Our paper predicts and finds that audit firms now do value tacit knowledge in inexperienced auditors, especially when their supervisors have higher tacit knowledge. Our proxies of value include higher promotability assessments, annual evaluations, and cash bonuses. Our paper also extends Tan and Libby [1997] by positing that enhanced development of expertise and audit firm human capital are two reasons audit firms value tacit knowledge in experienced auditors. As predicted, higher tacit knowledge in experienced auditors is positively associated with higher tacit knowledge acquisition by their inexperienced subordinates and with stronger firm commitment of inexperienced subordinates having higher tacit knowledge.

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Psychology in management accounting and control research: an overview of the recent literature

Wibbeke

Lachmann

2020

J Manag Control

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For decades, management accounting and control (MAC) researchers have employed a diverse set of source disciplines to predict and examine behavior, and psychology is among the most frequently drawn upon. Although the literature confirms that psychological theories are highly relevant to MAC research, the existing knowledge on this field remains fragmented. Given this background, we examine recent MAC research through a systematic review of the different subfields of psychology to investigate the development of this stream of research. To do so, we collect 125 relevant articles from nine leading accounting journals between 2000 and 2019 and analyze their contents. On this basis, we provide a detailed overview of the use of psychological theories in recent literature and identify links between specific theories and MAC topics. We find that the quantity and proportion of psychology-based MAC research and the diversity of psychology subfields all increase during our investigation period, especially between 2015 and the first half of 2019. Overall, most studies address performance measurement and evaluation topics, and social psychology concepts are the most frequently applied. However, we find considerable differences in the application of psychological theories across different MAC topics. Our review provides insights into the content of this research stream and, thus, serves as a valuable source for researchers seeking an overview of previous investigations drawing on different subfields of psychology.

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Subjectivity in Professionals' Incentive Systems: Differences between Promotion‐ and Performance‐Based Assessments

Cited by 26 publications

References 96 publications

Promotion, Relative Performance Information, and the Peter Principle

Promotion, Relative Performance Information, and the Peter Principle

The Role of Tacit Knowledge in Auditor Expertise and Human Capital Development

Psychology in management accounting and control research: an overview of the recent literature

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