Private and Public Relative Performance Information underDifferent Incentive Systems Open Access

Abstract

Private and Public Relative Performance Information under Different Incentive Systems By: Ivo Tafkov This study investigates the conditions under which providing relative performance information to employees has a positive effect on effort and performance. Specifically, I study, via an experiment, the effect of relative performance information (present or absent) on effort and performance under two incentive systems that do not tie employees' compensation to peer performance (flat-wage or individual performance-based). Furthermore, given the presence of relative performance information, I examine the effect of the type of relative performance information disclosure (private - employee's anonymity is preserved or public - employees' anonymity is not preserved) on effort and performance under a flat-wage and an individual performance-based contract. Using theory from psychology, I predict and find that relative performance information positively affects effort and performance under the two incentive systems and that this positive effect is greater under an individual performance-based compensation contract than under a flat-wage compensation contract. Also, I predict and find that when relative performance information is present, publicly (vs. privately) disclosing relative performance information positively affects effort and performance, and this effect is greater under an individual performance-based compensation contract than under a flat- wage compensation contract.

Private and Public Relative Performance Information under Different Incentive Systems By Ivo Tafkov B.B.A., Sofia University, 1998 M.B.A., Kennesaw State University, 2003 Advisor: Kristy Towry, Ph.D. A dissertation submitted to the Faculty of the Graduate School of Emory University in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Business 2009

Table of Contents

TABLE OF CONTENTS CONTENT PAGE I. DISSERTATION 1. Introduction 1 2. Theory and Hypotheses 4 2.1 Economic Theory on the Effect of RPI on Employee Effort and Performance 4 2.1.1 Tournaments 4 2.1.2 Team-Based Compensation 8 2.2 Social Comparison Theory on the Effect of RPI on Employee Effort and Performance 10 2.2.1 Social Comparison Theory 10 2.2.2 Social Comparison and Competitive Behavior 14 2.3 Providing RPI under Incentive Systems That Do Not Tie Compensation to Peer Performance 17 2.4 Interaction between the Incentive System and RPI 19 2.5 Public (vs. Private) Disclosure of RPI under Incentive Systems That Do Not Tie Compensation to Peer Performance 21 3. Method 23 3.1 Experiment Design and Task Description 23 3.2 Manipulating the Relative Performance Information 26 3.3 Manipulating the Incentive Mechanism 27 3.4 Participants and Procedures 28 4. Results 29 4.1 Validation of Experimental Setting 29 4.2 Hypotheses 1 and 2 31 4.3 Hypotheses 3 and 4 34 4.4 Process Analysis 36 4.4.1 Performance-Ability Relationship 36 4.4.2 Exacerbation of Pride and Shame 37 4.4.3 Sucker Effect 38 4.4.4 Performance over Time 39 4.5 Additional Analysis 41 4.5.1 Separate Analysis for Easy, Moderate, and Difficult Problems 41 4.5.2 Effort Intensity 44 4.5.3 Problems Attempted 45 4.5.4 Time Spent Choosing 46 4.5.5 Dominated vs. Not Dominated Choices 47 5. Conclusion 48 6. References 50 TABLE OF CONTENTS (continued) CONTENT PAGE II. FIGURES 1. Figure 1: Predicted Effects of RPI and Incentive System on Effort and Performance (H1 and H2) 56 2. Figure 2: Predicted Effects of Type of RPI Disclosure and Incentive System on Effort and Performance (H3 and H4) 57 3. Figure 3: Effect of RPI and Incentive System on Time Spent (H1a and H2a) 58 4. Figure 4: Effect of RPI and Incentive System on Problems Solved (H1b and H2b) 59 5. Figure 5: Effect of Type of RPI Disclosure and Incentive System on Time Spent (H3a and H4a) 60 6. Figure 6: Effect of Type of RPI Disclosure and Incentive System on Problems Solved (H3b and H4b) 61 7. Figure 7: Effect of RPI and Incentive System on Problems Attempted 62 8. Figure 8: Effect of RPI and Incentive System on Time Spent Choosing 63 III. TABLES 1. Table 1: Multiplication Problems 64 2. Table 2: Descriptive Statistics 65 3. Table 3: Descriptive Statistics 66 4. Table 4: Contrast Coding Summary Tables for Planned Contrasts Used to Test H1, H2, H3, and H4 68 5. Table 5: Descriptive Statistics 70 IV. APPENDICES 1. Appendix A: Procedures, Instructions, and Screen Shots 72 2. Appendix B: Task Description 79 3. Appendix C: Instructions, Quiz, and Post Experimental Questionnaire 84

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School	Laney Graduate School
Department	Business
Degree	PhD
Submission	Dissertation
Language	English
Research Field	Business Administration, Accounting
Keyword	incentive system relative performance information performance
Committee Chair / Thesis Advisor	Towry, Kristy, Emory University
Committee Members	Hecht, Gary, Emory University Kadous, Kathryn, Emory University

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