The Informativeness of Relative Performance Information and its Effect on Effort Allocation in a Multi-Task Environment
Posted: 20 Feb 2019
Date Written: September 12, 2018
Prior research documents that providing relative performance information (RPI) motivates employees to increase effort; however, a potential downside of RPI is that it also motivates employees to distort their effort allocations between tasks that can be detrimental to overall firm performance. This study investigates via an experiment how the informativeness of RPI affects employees’ effort allocations and performance in a multi-task environment. We investigate the informativeness of two RPI design choices that are observed in practice: detail level and temporal aggregation. Regarding detail level, firms may provide each employee’s performance ranking on tasks, which is less informative than providing the actual performance score of each employee. Regarding temporal aggregation, firms may provide RPI that is re-set each period, which is less informative than RPI that is based on cumulative performance. We find RPI detail level and temporal aggregation interact to influence effort distortion. Specifically, we find that compared to re-set RPI, cumulative RPI leads to greater distortion of effort away from firm-preferred allocations and that this effect is magnified when RPI provides actual performance scores rather than performance rankings. Finally, high levels of effort distortion hurt overall performance, thereby demonstrating the potentially detrimental effect of effort distortion on performance. Results of our study enhance our understanding of how firms can use their control over the design of RPI to enhance its usefulness in directing employees’ effort in multi-task environments by highlighting the role that informativeness of information can have on employee behavior.
Keywords: relative performance feedback, multi-task environment, effort allocation, informativeness
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