scholarly journals Promotion, Relative Performance Information, and the Peter Principle

2017 ◽  
Vol 93 (3) ◽  
pp. 83-103 ◽  
Author(s):  
Eric W. Chan
Keyword(s):  
Job Performance ◽  
Relative Performance ◽  
Data Availability ◽  
Performance Information ◽  
Worker Performance ◽  
Relative Performance Information ◽  
Peter Principle ◽  
Supplemental Experiment ◽  
The Cost ◽  
The Impact

ABSTRACT 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. Consistent with the Peter Principle, I find that when workers have RPI, the promoted worker's performance is lower after promotion because the promoted worker lacks the ability to perform the new job well. Finally, in a supplemental experiment, I find that providing workers with feedback on their abilities to perform the next job, in addition to current job RPI, improves the effective sorting of workers, but it comes at the cost of reduced promotion-based incentives. My results suggest that, notwithstanding the benefits documented in previous studies, RPI also imposes potential costs that firms should take into account when deciding whether to provide workers with RPI. JEL Classifications: M41; M51; M52. Data Availability: Contact the author.

The Effect of Relative Performance Information on Performance and Effort Allocation in a Multi-Task Environment

2012 ◽  
Vol 88 (2) ◽  
pp. 553-575 ◽  
Author(s):  
R. Lynn Hannan ◽  
Gregory P. McPhee ◽  
Andrew H. Newman ◽  
Ivo D. Tafkov
Keyword(s):  
Employee Performance ◽  
Relative Performance ◽  
Data Availability ◽  
Task Environment ◽  
Performance Information ◽  
Behavioral Theories ◽  
The Social ◽  
Distortion Effect ◽  
Relative Performance Information ◽  
Motivation Effect

ABSTRACT This study investigates how relative performance information (RPI) affects employee performance and allocation of effort across tasks in a multi-task environment. Based on behavioral theories, we predict that the social comparison process inherent in RPI induces both a motivation effect that results in increased effort as well as an effort distortion effect that results in the distortion of effort allocations across tasks away from the firm-preferred allocations. We also predict that both effects are magnified when the RPI is public compared to private. We argue that although the motivation effect will generally benefit performance, the effort distortion effect may be detrimental to performance. We design an experiment that isolates these two effects. Consistent with our predictions, we find that RPI induces both motivation and effort distortion effects and that both effects are magnified when the RPI is public rather than private. Although the motivation effect increases performance, we demonstrate that the effort distortion effect can decrease performance. By isolating the motivation and effort distortion effects, our study provides insights into the costs and benefits of RPI in a multi-task environment. As such, it informs accountants regarding the design of information systems and when tasks should be aggregated or disaggregated across employees. Data Availability: Data are available from the authors upon request.

Private and Public Relative Performance Information under Different Compensation Contracts

2012 ◽  
Vol 88 (1) ◽  
pp. 327-350 ◽  
Author(s):  
Ivo D. Tafkov
Keyword(s):  
Individual Performance ◽  
Relative Performance ◽  
Data Availability ◽  
Performance Information ◽  
Public And Private ◽  
Compensation Contracts ◽  
Private And Public ◽  
Relative Performance Information ◽  
Wage Contract ◽  
Positive Effect

ABSTRACT: This study investigates the conditions under which providing relative performance information to employees has a positive effect on performance when compensation is not tied to peer performance. Specifically, I investigate, via an experiment, the effect of relative performance information (present or absent) on performance under two compensation contracts (flat-wage or individual performance-based). Given the presence of relative performance information, I examine the effect of the type of relative performance information (private or public) on performance. Using theory from psychology, I predict and find that relative performance information positively affects performance under the two compensation contracts and that this positive effect is greater under an individual performance-based contract than under a flat-wage contract. I also predict and find that, although both public and private relative performance information have a positive effect on performance, the effect is greater when relative performance information is public. Data Availability: Data are available from the author on request.

Assigned versus Chosen Relative Performance Information: The Effect of Feedback Frequency on Performance

2020 ◽  
Vol 32 (1) ◽  
pp. 137-158
Author(s):  
D. Kip Holderness ◽  
Kari Joseph Olsen ◽  
Todd A. Thornock
Keyword(s):  
Relative Performance ◽  
Data Availability ◽  
Performance Information ◽  
Short Term ◽  
Subsequent Performance ◽  
Negative Effect ◽  
Relative Performance Information ◽  
And Performance ◽  
Feedback Frequency

ABSTRACT Technological advancements have greatly improved the ability to provide relative performance information (RPI), including information systems capable of providing feedback on demand. We use an experiment to examine the effect of RPI feedback frequency on task performance when RPI is assigned by managers and when RPI is solicited by employees. When RPI is assigned to employees, we hypothesize and find a non-linear relationship between RPI frequency and performance such that an increase in frequency first increases and then decreases performance. In contrast, we hypothesize and find that when RPI is chosen by employees, the negative effect of highly frequent RPI on performance is not only mitigated, but reversed, due to individuals placing greater weight on chosen feedback than assigned feedback. We also find that when individuals choose to view RPI feedback, strategic effort (i.e., expending short-term resources for long-term benefits) mediates the relation between viewing RPI and subsequent performance. JEL Classifications: M10; M40; M41. Data Availability: Data available upon request.

I Know Something You Don't Know: The Effect of Relative Performance Information and Individual Performance Incentives on Knowledge Sharing

2018 ◽  
Vol 31 (2) ◽  
pp. 19-35 ◽  
Author(s):  
Leslie Berger ◽  
Krista Fiolleau ◽  
Carolyn MacTavish
Keyword(s):  
Knowledge Sharing ◽  
Interactive Effect ◽  
Individual Performance ◽  
Relative Performance ◽  
Performance Information ◽  
Performance Incentives ◽  
Passive Behavior ◽  
Knowledge Sharing Behavior ◽  
Relative Performance Information ◽  
Sharing Behavior

ABSTRACT When employees share knowledge with their colleagues, the efficiency of the colleagues' performance improves, which positively affects their productivity. However, employees can engage in counterproductive behavior by choosing not to share knowledge (passive behavior) or by choosing to share inaccurate knowledge with their colleagues (active behavior). In this study, we examine how providing relative performance information (RPI) and rewarding individuals with performance-based incentives can jointly affect individuals' choices to engage in counterproductive knowledge sharing behavior. Using an experiment, we identify an interactive effect of RPI and individual incentives, such that participants engage in counterproductive knowledge sharing behavior most frequently when they receive RPI and are assigned individual performance-based incentives. We also observe that RPI increases the frequency of both active and passive counterproductive knowledge sharing behavior.

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