Abstract

ABSTRACTWe use a field experiment in professional sports to compare effects of providing absolute, relative, or both absolute and relative measures in performance reports for employees. Although studies have documented that the provision of these types of measures can benefit performance, theory from economic and accounting literature suggests that it may be optimal for firms to direct employees’ attention to some types of measures by omitting others. In line with this theory, we find that relative performance information alone yields the best performance effects in our setting—that is, that a subset of information (relative performance information) dominates the full information set (absolute and relative performance information together) in boosting performance. In cross‐sectional and survey‐data analyses, we do not find that restricting the number of measures shown per se benefits performance. Rather, we find that restricting the type of measures shown to convey only relative information increases involvement in peer‐performance comparison, benefitting performance. Our findings extend research on weighting of and responses to measures in performance reports.

Highlights

  • To guide the use of performance evaluation and reporting, a growing literature in accounting examines how internal performance reports affect employee performance (Hannan, Krishnan, and Newman [2008], Tafkov [2013])

  • We draw on research from psychology and behavioral economics that shows that individuals place greater weight on and respond more strongly to a cue when it is presented alone rather than in combination with another cue (Lichtenstein, Earle, and Slovic [1975], Birnbaum [1976], Kruschke and Johansen [1999], Dellavigna [2009]). In line with this insight, we find that the average player places less weight on relative performance information—engaging less in peer comparison and performing worse—when we include absolute information alongside relative information in their performance report

  • We contribute to management accounting literature that explores how employees place weight on and respond to different types of performance measures

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Summary

Introduction

To guide the use of performance evaluation and reporting, a growing literature in accounting examines how internal performance reports affect employee performance (Hannan, Krishnan, and Newman [2008], Tafkov [2013]). Research in management accounting has demonstrated that internal reports and feedback are effective tools for heightening motivation, communicating strategic priorities, and improving performance (Simons [1995], Kaplan and Norton [1996], Hannan, Krishnan, and Newman [2008], Casas-Arce, Lourenço, and Martínez-Jerez [2017]) To extend this literature, we offer evidence that managers can boost employee performance by reporting the subset of measures that best motivates and facilitates development in a given setting. We find that less-experienced employees, who are more likely to be in a developmental stage of their careers (Podsakoff and Farh [1989], Goodman, Wood, and Hendrickx [2004]), perform best when they receive both absolute and relative performance measures This result among players in an early stage of their careers is consistent with theory that a broader set of information is useful for learning and skill development (Song et al [2018]).

Setting and Institutional Background
Literature Review and Hypotheses
Experiment Design
Analysis
Conclusion
Findings
Full Text
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