THE EFFECT OF MUTUAL MONITORING ON EMPLOYEE EFFORT IN A TOURNAMENT SETTING

Abstract

ABSTRACT Empirical research provides evidence that the ability of workers to mutually monitor one another can have positive incentive effects by inducing social pressures. However, theory and direct evidence regarding the role of mutual monitoring is limited within tournament settings. In this paper, I investigate the effect of mutual monitoring on employee effort in a tournament setting. Specifically, I investigate whether mutual monitoring has a different effect on employee effort when employees' psychological distance is low compared to when employees' psychological distance is high. The paper finds empirical evidence that in a rank-order tournament setting, effort will not differ whether or not employees can mutually monitor. Although I found no statistically significant support for the interactive effect between mutual monitoring and psychological distance increasing employee effort, I did see a trend in the data that lends directionally support to the idea that the positive incentive effects of mutual monitoring may be attenuated based on the level of psychological distance between employees. Notwithstanding the limitations of this study, understanding the effects of psychological distance on mutual monitoring has far reaching implications for the effectiveness of formal control mechanisms as a tool by which to induce employee effort, specifically in a tournament setting. Keywords mutual monitoring, psychological distance, employee effort, rank-order tournament