The Effects of Group Incentives and Transparency on Managers' Strategic Promotion Behavior

Abstract

We investigate managers’ propensity to engage in strategic promotion behavior. Strategic promotion behavior occurs when managers pursue personal economic interests when contributing to employee promotion decisions, such that the probability that relatively higher (lower) performing employees are selected for a promotion is decreased (increased). We develop theory about how two important control system design variables – the presence of group incentives and transparency about individual performance – jointly affect managers’ tendency to strategically influence promotion decisions. Using a stylized lab experiment, we find that transparency about individual performance levels decreases strategic promotion behavior to a greater extent when group incentives are absent than when group incentives are present. In fact, we find some evidence that in the presence of group incentives transparency can lead to an increase in strategic promotion behavior. Our study contributes to the literatures on control system design and employee promotion, and has important practical implications.

Keywords: Promotion, Performance Evaluation, Transparency, Incentives, Strategic Behavior