What guides subjective performance evaluation: Incentive alignment or norm enforcement?

What guides subjective performance evaluation: Incentive alignment or norm enforcement? This paper investigates the objectives guiding a superior’s subjective evaluation of subordinate performance. In a laboratory experiment, we implement a team production setting under uncertainty, where subordinates contribute to the organization’s output by choosing effort levels, but individual contributions are subject to random shocks. After observing joint output, the superior can invest into additional (perfect or imperfect) information about effort levels. We test two competing hypotheses about objectives guiding a superior’s subjective performance evaluation. The incentive alignment hypothesis states that the superior is guided by the objective to establish financial incentives that align a subordinate’s preferences with the organization’s goals such that it is in the subordinate’s self-interest to provide effort. In contrast, the norm enforcement hypothesis states that the superior has a focus on subordinate behavior and wants to enforce the norm of cooperation by rewarding high and punishing low effort. Our results reject the incentive alignment hypothesis and provide support for the norm enforcement hypothesis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Managerial Science Springer Journals

What guides subjective performance evaluation: Incentive alignment or norm enforcement?

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2016 by Springer-Verlag Berlin Heidelberg
Subject
Business and Management; Business and Management, general; Accounting/Auditing; Banking; Marketing; Business Strategy/Leadership
ISSN
1863-6683
eISSN
1863-6691
D.O.I.
10.1007/s11846-016-0209-9
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the objectives guiding a superior’s subjective evaluation of subordinate performance. In a laboratory experiment, we implement a team production setting under uncertainty, where subordinates contribute to the organization’s output by choosing effort levels, but individual contributions are subject to random shocks. After observing joint output, the superior can invest into additional (perfect or imperfect) information about effort levels. We test two competing hypotheses about objectives guiding a superior’s subjective performance evaluation. The incentive alignment hypothesis states that the superior is guided by the objective to establish financial incentives that align a subordinate’s preferences with the organization’s goals such that it is in the subordinate’s self-interest to provide effort. In contrast, the norm enforcement hypothesis states that the superior has a focus on subordinate behavior and wants to enforce the norm of cooperation by rewarding high and punishing low effort. Our results reject the incentive alignment hypothesis and provide support for the norm enforcement hypothesis.

Journal

Review of Managerial ScienceSpringer Journals

Published: Aug 31, 2016

References

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