Relative performance evaluation among business unit level managers

Abstract

PurposeRelative performance evaluation (RPE) is a widely studied topic in the theoretical and analytical accounting and economics literatures. The empirical literature also addresses this topic, with its main focus on executive compensation. This paper aims to extend the findings of the literature by assessing the extent to which RPE is used at lower organisational levels.Design/methodology/approachThis study uses a purpose-developed survey to gather data from 325 business unit managers.FindingsThis study finds that RPE is used to a great extent in the performance evaluation of business unit managers. Additionally, the findings suggest that RPE use increases the informativeness of the performance evaluation through noise reduction. Noise in the performance evaluation is described in literature as the primary antecedent of RPE, but prior research provides only weak empirical support for this claim.Research limitations/implicationsThis study hypothesises a causal relation between RPE and noise in performance evaluation. However, the use of cross-sectional survey data only allows testing associations, not causations.Originality/valueThe originality and value of the paper lie in the focus on the business unit level and the use of survey data, which are almost completely absent in this area of research that almost exclusively uses archival data at the executive level.