Isu isu chap 13

I conduct an experiment using a setting in which employers and workers interact over multiple work
periods. Workers perform tasks that generate revenue for their employer, who, in turn, pays workers a
fixed salary plus an output-based bonus. There are two levels of workers: higher-level workers perform a
more complex task and earn higher pay than lower-level workers. I manipulate whether workers have
RPI using a between-participants design with two conditions: RPI versus No RPI. In the RPI condition,
lower-level workers receive information about their own current job performance rank and the ranks of
other lower-level workers in the same firm. In the No RPI condition, lower-level workers receive no
performance rank information. During the experiment, workers receive an announcement about an
upcoming promotion, and the employer subsequently promotes one lower-level worker to a new
higher-level position. I examine workers’ behavior before and after the promotion announcement and
after the promotion itself, as well as employers’ promotion decisions across the two conditions. I find
that after the announcement of an upcoming promotion, workers in both the RPI and No RPI conditions
increase their effort to improve their current job performance because they expect that this will
increase their chances of promotion. I find that low performers increase their effort to a greater extent
than high performers in response to the promotion announcement, but only when workers have RPI and
know their relative position. Moreover, because employers anticipate their workers’ fairness concerns,
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. After being passed over for promotion, non-
promoted workers’ performance decreases, and this decrease is greater for workers who have RPI and
see that the best current job performer was not promoted. Consistent with the Peter Principle, I find
that the promoted workers’ performance after promotion is lower when workers have RPI because the
promoted worker lacks the ability to perform the new job well..

Promotions and the Peter Principle

Promotions are arguably the most important form of incentives in many organizations (Gibbs 1996).
Promotions are implicit incentives because they are typically discretionary in nature (Milgrom and
Roberts 1992; Prendergast 1999; Gibbs (1994). Such incentives are particularly strong for lower-level
workers because each promotion provides an immediate increase in pay and the option value of being
eligible for future pay increases from further promotions (Gibbons and Murphy 1992; Gibbs 1995;
Ederhof 2011) Employers often provide workers with RPI (Nordstrom et al. 1991; Gino and Staats 2011).
Economic studies have shown that there are contracting benefits from evaluating workers based on
their relative performance because it filters out common uncertainty (Lazear and Rosen 1981;
Holmstrom 1982; Nalebuff and Stiglitz 1983). While a burgeoning behavioral literature finds that RPI can
have positive motivational effects on worker performance (e.g., Blanes i Vidal and Nossol 2011; Tafkov
2013), such effects can sometimes backfire. For example, RPI can cause workers to adopt risky,
ineffective strategies in a tournament setting (Hannan et al. 2008) and distort workers’ incentives away
from taking firm-preferred actions in a multi-task setting (Hannan, McPhee, Newman, and Tafkov 2013).
My study examines how RPI affects workers’ performance indirectly by influencing the employer’s
promotion decisions.
Hipotesis:

H1a: Workers’ performance increases after the employer announces an upcoming promotion.

H1b (null form): The change in workers’ performance after the employer announces an upcoming
promotion does not

differ between low performers and high performers, regardless of whether workers have RPI.

H2a: Employers are more likely to promote the worker with the best current job performance than the
worker with the

highest ability to perform the next job when workers have RPI than when workers do not have RPI.

H2b: Promoted workers’ performance in the higher-level job after promotion is lower when workers
have RPI than when

workers do not have RPI.

H3a: Non-promoted workers’ performance declines after a promotion occurs.

H3b: Non-promoted workers’ performance declines more when workers have RPI and the employer
does not promote the

best current job performer than when either workers have RPI and the employer promotes the best
current job

performer or workers do not have RPI

In my hypotheses tests below, I analyze workers’ performance by groups of related work periods based
on the key events that occur in the experiment as described earlier. The work period groups I analyze
are: (1) Periods 1 and 2, which capture workers’ baseline performance (Pre-Announcement period), (2)
Periods 3 through 5, which capture performance after the promotion announcement, but before the
promotion (Post-Announcement period), and (3) Periods 6 through 8, which capture performance after
the promotion (Post-Promotion period). As explained earlier, the employer assigns one worker to the
higher-level position after the training period. Across both experimental conditions, 39 out of 44
employers (18 of 22 in the No RPI; 21 of 22 in the RPI condition) assign the worker with the highest rank
on the higher-level task during the training period to the higher-level position. This result indicates that
employers understand the importance of sorting workers into jobs that best match their abilities.
Because the assigned higher- level workers are unaffected by the subsequent promotion, I exclude these
workers’ performance from my analyses below. these results provide support for H1a, that workers
increased their effort after the promotion announcement because they expect their employer to
promote them based on their relative current job performance. Importantly, workers have these same
expectations regardless of whether they receive RPI and despite the fact that they know their employers
have private information about their relative abilities to perform the higher-level task.
The null form H1b tests for differences in the change in workers’ performance after the promotion
announcement between low performers and high performers when they have or do not have RPI. For
ease of interpretation of the results, I exclude the medium performers and define workers as low (high)
performers if their cumulative performance rank at the end of the Pre- Announcement period is the
lowest (highest) among their peers in the same firm.10 Consistent with H2a, Figure 3 shows that 12 out
of 19 employers (63 percent) in the RPI condition promoted the best current job performer, rather than
the best candidate for the next job, versus three out of 18 (17 percent) in the No RPI 90). Consistent
with the underlying logic of H2a, untabulated planned contrast results indicate that non-promoted
workers’ Deservingness Judgment (t70 ¼ 2.94, p , 0.01) and Promotion Reaction (t70 ¼ 1.82, p ¼ 0.07)
are consistent with the pattern described above. Panels A and B of Figure 4 depict these results. As
expected, untabulated simple effects tests indicate that when the best current job performer was not
promoted (i.e., best candidate for the next job was promoted), non-promoted workers believe the
promoted worker is less deserving of the promotion (F1,70 ¼ 5.06, p ¼ 0.01) and are more disappointed
(F1,70 ¼ 2.18, p ¼ 0.07) when workers have RPI (3.29 and - 1.50, respectively) than when they do not
have RPI (4.47 and 0.90, respectively). However, when the best current job performer was promoted,
the corresponding responses are not significantly different (both F1,70 , 0.90 and p . 0.35) when workers
have RPI (5.04 and - 0.46, respectively) versus when they do not have RPI (4.83 and - 1.00, respectively).
I compare promoted workers’ output during the Post-Promotion period across the No RPI and RPI
conditions. Consistent with H2b, Panel A of Table 3 shows that the promoted workers’ regular period
output and total output in the higher-level task during the Post-Promotion period are significantly higher
(both p , 0.02) in the No RPI condition (16.41 and 17.24, respectively) than in the RPI condition (12.96
and 13.80, respectively). As expected, I find no significant differences in workers’ overtime period
output (0.83 versus 0.84, p ¼ 0.99) and an equally low likelihood of working overtime (13 percent versus
16 percent, p ¼ 0.67) across the two conditions because there are no future benefits for workers to
work overtime after promotion. H3a and H3b H3a predicts that non-promoted workers’ performance
declines after a promotion occurs. To test H3a, I compare non- promoted workers’ output during the
Post-Promotion period to the Post-Announcement period, pooled across conditions.12 Consistent with
H3a, Table 4 shows that their overtime period output and total output decreased significantly (all p ,
0.01) from the Post-Announcement period (5.18 and 40.84, respectively) to the Post-Promotion period
(1.69 and 37.73, respectively), mainly because fewer workers chose to work overtime (41 percent versus
13 percent, p , 0.01). Post-experimental questionnaire results indicate that non-promoted workers are
less motivated to work overtime because future promotion is less likely.13 H3b predicts that non-
promoted workers’ performance declines more when they have RPI and see that the best current job
performer was not promoted than when they either have RPI and see that the best current job
performer was promoted or do not have RPI. To test this, I use the same planned contrasts described
earlier, with the change in non-promoted workers’ total output from the Post-Announcement period to
the Post-Promotion period as the dependent measure and assigned contrast weights of - 3 for the RPI
condition when the best candidate for the next job was promoted and þ1 for the remaining three
conditions. I investigate the effects of providing workers with relative performance information (RPI) on
employers’ lg, the job after promotion requires higher-level abilities than the current job and there is
uncertainty about the employer’s promotion rule. I find that workers generally expect their employer to
promote them based on their current job performance because of fairness concerns, resulting in greater
worker effort after a promotion opportunity is announced. Moreover, 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, resulting in the ineffective sorting of workers and the Peter Principle.
Finally, using a supplemental experiment, I find that providing workers with feedback on their abilities to
perform the next job, in addition to RPI on their current job, improves the effective sorting of workers,
but it comes at the cost of reduced promotion-based incentives

Isu isu 14

This study examines how the use of causal language in conveying relative performance feedback
impacts subsequent

task performance. Performance feedback has been defined in the literature as information given to a
person regarding

the quantity and quality of his or her past performance (Prue and Fairbank 1981). The current literature
in accounting

on performance feedback has primarily focused on developing quantitative measures of performance

and studying how

employee behavior is influenced by those measures (Hemmer 1996; Ittner, Larcker, and Rajan 1997;
Banker, Potter, and

Schroeder 1993). However, little research has focused on the role of qualitative information in
performance feedback, although

the provision of qualitative performance feedback is a key component of an organization’s management

control system

(Luckett and Eggleton 1991), and managers often devote resources to this issue in practice (Sprinkle
2003; Baiman and Rajan
1995). We argue that the way that managers communicate with employees in performance evaluations
has a direct impact on

employee performance. Specifically, we argue that employees react to the language used in
explanations, even when the

explanation itself is held constant.

In this study, we investigate how the use of causal language, or language reflecting the search for
reasons (Pennebaker and

Francis 1996), influences employees’ reactions to the relative performance information contained in
performance evaluations.

irectional prediction regarding the effect of the use of causal language in positive feedback on
subsequent performance.

We test our theory in a relative performance setting for two reasons. First, the use of relative
performance feedback is a

common and significant component of performance evaluation systems within organizations. Tice (2015)
finds that relative

performance evaluation use in the public firms in her sample increased from 22 percent in 2006 to 37
percent in 2012, and

recent research has suggested that the use of relative performance feedback leads to increased effort
and improved subsequent

performance (Tafkov 2013; Hannan, McPhee, Newman, and Tafkov 2013). Second, compared to other
performance evaluation

systems, the use of relative performance feedback generates more uncertainty in performance
outcomes for employees, as they
do not have complete information about the distribution of performance outcomes and, therefore,
cannot readily engage in self-

comparison. Since our theory develops from the assumption that performance feedback is uncertain, we
choose to test our

predictions in a setting where feedback uncertainty is high.

H1: When initial performance is poor and feedback is negative, high use of causal language in conveying
negative

feedback leads to a greater improvement in subsequent performance relative to low use of causal
language

H2: When initial performance is good and feedback is positive, high use of causal language in conveying
positive

feedback leads to no differential improvement in subsequent performance relative to low use of causal
language.

To test our predictions, we use a 2 3 2 between-subjects design that varies the following independent
variables in the

feedback manipulation: use of causal language (high versus low) and feedback valence (positive versus
negative). Feedback

valance is assigned to participants based on their performance on the experimental task prior to
receiving the causal language

manipulation.

Participants were 108 undergraduate business students from a large, public state university who
performed the
experimental task in a laboratory setting.6,7 The laboratory setting ensured that the task was completed
continuously and that

participants were not exposed to any other language during the experimental task. Participants were
paid a flat fee of $15 for

their participation after completing the study.8 Participants were recruited from introductory financial
and managerial

accounting courses. They were 19.6 years old, on average, and had 1.9 years of work experience.
Because our experimental

task does not require prior accounting knowledge or any specialized skills, we believe that these
participants are an appropriate

subject pool for testing predictions about the impact of language in performance evaluation

In this study, we present theory and experimental evidence consistent with the idea that the quantity of
causal language

contained in relative performance feedback impacts both future performance and employees’
emotional reactions to the

performance evaluation. Theory suggests that causal language facilitates the sense-making process that
employees use when

they attempt to interpret the information contained in performance evaluations. We predict and find
that when initial

performance is poor and feedback is negative, the presence of causal language in performance feedback
leads to a greater
improvement in performance. Further, when performance feedback is positive, we find that the high
use of causal language

(relative to low use of causal language) results in a lower improvement in subsequent task performance.
In supplemental

analyses, we find that the use of causal language improves affect when performance feedback is
negative, but has no significant

effect when performance feedback is positive.