The Effects of Disseminating Relative Performance Feedback in Tournament and Individual Performance Compensation Plans

Hannan, R. Lynn; Krishnan, R. S.; Newman, Andrew H.

doi:10.2308/accr.2008.83.4.893

Cited by 222 publications

(53 citation statements)

References 31 publications

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“…As shown in Figure 6, the employer's average profit is very similar in the two conditions in the periods before promotion but diverges after the promotion occurs. Specifically, the employer's average profit is not significantly different (both p's > 0.30, untabulated) 19 Because prior research suggests that RPI increases workers' performance, this result initially appears surprising (Hannan et al 2008;Tafkov 2013). However, an important difference between my setting and the settings in the prior studies is that in the prior settings there were no employers and workers' pay was not tied to their peer performance.…”

Section: Tests Of Research Questionmentioning

confidence: 38%

“…Prior research has focused primarily on the direct effects of RPI on worker performance (e.g. Hannan et al 2008;Tafkov 2013). Prior field and experimental studies find that RPI generally has a positive effect on worker performance because workers make social comparisons and are motivated to outperform their peers and avoid shame (e.g., Blanes i Vidal and Nossol 2011; Tafkov 2013).…”

Section: Contributionsmentioning

confidence: 99%

“…9 To capture the notion that work is costly, prior studies have participants either perform a real effort task (e.g., Sprinkle 2000; Tafkov 2013) or choose an effort level from an effort cost schedule (e.g., Hannan et al 2008;Kuang and Moser 2009). In my experiment, I use a hybrid approach by having participants perform an effort task and also providing them with an option to work overtime at a cost.…”

Section: Assumption 2)mentioning

confidence: 99%

“…This design allows me to clearly distinguish whether the employer wants to promote the best current job performer or the worker with the highest ability to perform the next higher-level job. Employers only receive rank information rather than specific performance information to simplify their promotion decisions.9 To capture the notion that work is costly, prior studies have participants either perform a real effort task (e.g., Sprinkle 2000; Tafkov 2013) or choose an effort level from an effort cost schedule (e.g., Hannan et al 2008; Kuang and Moser 2009). In my experiment, I use a hybrid approach by having participants perform an effort task and also providing them with an option to work overtime at a cost.…”

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confidence: 99%

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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: Tests Of Research Questionmentioning

confidence: 38%

Section: Contributionsmentioning

confidence: 99%

Section: Assumption 2)mentioning

confidence: 99%

mentioning

confidence: 99%

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Promotion, Relative Performance Information, and the Peter Principle

Chan

2017

The Accounting Review

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“…Given that relative performance contracts usually stimulate higher performance and more risk-taking behaviors (Frederickson 1992;Coles et al 2006;Matsumura and Shin 2006;Hannan et al 2008), our finding that the probability information on common uncertainty induces participation in relative performance contracts is nontrivial. For an owner with the objective of encouraging employees to accept a relative performance contract, to provide them with the expected probability of common uncertainties can be an effective and efficient way to enhance the attractiveness of the contract and achieve the owner's objective.…”

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confidence: 78%

Effects of Ambiguous Common Uncertainty on Employees’ Preference for Relative Performance Contracts

Bai¹,

Krishnan²

2016

TJAR

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We distinguish ambiguous common uncertainty (with unknown probability distribution) from risky common uncertainty (with known probability distribution) and examine how employee preference for relative performance contracts differs between the two conditions. Using economics and psychology theory in decision making under uncertainty, we hypothesize that (i) preference for relative performance contracts is low (high) when common uncertainty is ambiguous (risky); and (ii) confidence mediates the relation between ambiguity and preference for relative performance contracts. Results from a controlled laboratory experiment support these predictions. A follow-up experiment provides evidence that the direct effect of ambiguity and the mediating effect of confidence disappear if the contract is based on independent performance measures. Our study contributes to the literature on performance measurement, employee contract preference, and decision making under uncertainty.1

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Behavioral Effects of Sustainability‐Oriented Incentive Systems

Huber

Hirsch

2015

Bus Strat Env

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Companies increasingly extend their existing incentive systems by integrating several sustainable performance indicators. Although these ‘sustainability‐oriented’ incentive systems clearly highlight which business objectives should be attained, little is known about the effects that these incentive systems have on employee behavior. Based on signaling theory, social identity theory and a person–organization fit (PO‐fit) perspective, we assume positive relations between sustainability‐oriented incentive systems and employee attraction, motivation and cooperation. Furthermore, we examine whether these relations are moderated by personal attitudes toward corporate sustainability activities as well as the underlying mechanisms at the moderation (mediated moderation). Our experimental results (with students as future employees) do not give support for a general positive relation between sustainability‐oriented incentive systems and employee behavior. However, our data show that a person's attitude toward corporate sustainability activities moderates the link between sustainability‐oriented incentive systems and employee behavior. Additionally, we find PO‐fit perceptions to mediate the interaction effects. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment

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The Effects of Disseminating Relative Performance Feedback in Tournament and Individual Performance Compensation Plans

Cited by 222 publications

References 31 publications

Promotion, Relative Performance Information, and the Peter Principle

Promotion, Relative Performance Information, and the Peter Principle

Effects of Ambiguous Common Uncertainty on Employees’ Preference for Relative Performance Contracts

Behavioral Effects of Sustainability‐Oriented Incentive Systems

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