Relative Target Setting and Cooperation

44 Pages Posted: 10 Oct 2018

See all articles by Martin Kamil Holzhacker

Martin Kamil Holzhacker

Michigan State University

Stephan Kramer

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

Michal Matejka

Arizona State University

Nick Hoffmeister

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2018

Abstract

A large stream of work on relative performance evaluation highlights the benefits of using information about peer performance in contracting. In contrast, the potential costs of discouraging cooperation among peers have received much less attention. The purpose of our study is to examine how the importance of cooperation affects the use of information about peer performance in target setting, also known as relative target setting. Specifically, we use data from an industrial services company where business unit managers need to share specialized equipment and staff with their peers to manage bottlenecks in their capacity. We construct several empirical proxies for the costs and benefits of information about peer performance and examine their effects on target setting. We find robust evidence that the sensitivity of target revisions to past peer performance is higher when peer group performance has greater capacity to filter out noise but lower when the importance of cooperation among peers is greater.

Keywords: relative performance evaluation, target setting, incentives, cooperation

JEL Classification: M21, M41, M52

Suggested Citation

Holzhacker, Martin Kamil and Kramer, Stephan and Matejka, Michal and Hoffmeister, Nick, Relative Target Setting and Cooperation (September 16, 2018). Available at SSRN: https://ssrn.com/abstract=3250472 or http://dx.doi.org/10.2139/ssrn.3250472

Martin Kamil Holzhacker (Contact Author)

Michigan State University ( email )

Business Complex North
East Lansing, MI 48824-1122
United States

Stephan Kramer

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Michal Matejka

Arizona State University ( email )

Tempe, AZ 85287-3706
United States
480-965-7984 (Phone)

Nick Hoffmeister

Independent ( email )

No Address Available

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