Designing a Performance Feedback System in a Multi-Task Environment: Relative Performance Information Detail Level and Temporal Aggregation in a Multi-Task Environment

Abstract

When using relative performance information (RPI) in a multi-period setting, firms have discretion in selecting RPI’s detail level and temporal aggregation. With respect to the detail level, firms can only reveal the ranking of each employee (rank-score RPI) or provide the actual scores of each employee (actual-score RPI). Regarding temporal aggregation, firms can provide RPI which is re-set each period (re-set RPI) or provide RPI that captures cumulative performance across all periods completed thus far (cumulative RPI). Using an experiment, we investigate how RPI detail level and temporal aggregation affect employee effort allocation and performance in a multi-task environment. Consistent with the behavioral theories underlying our predictions, we find that compared to re-set RPI, cumulative RPI leads to greater distortion of effort allocations across tasks away from firm-preferred allocations. We also find that to the extent that cumulative RPI increases effort distortion, the effect is greater when RPI provides actual score rather than rank score. Finally, we find that when effort distortion is highest (i.e., when cumulative RPI is combined with actual-score RPI), overall performance is lowest, thereby demonstrating the potentially detrimental effect of effort distortion on performance. Results of our study contribute to both theory and practice by enhancing our understanding of the effect of RPI in a multi-task environment, and particularly, how two of its characteristics, detail level and temporal aggregation, can affect effort allocation and performance in a multi-task environment.

Keywords: relative performance feedback, multi-task environment, effort allocation, performance