The Informativeness of Relative Performance Information and its Effect on Effort Allocation in a Multi-Task Environment

Posted: 20 Feb 2019

See all articles by R. Lynn Hannan

R. Lynn Hannan

Tulane University - A.B. Freeman School of Business

Gregory P. McPhee

Clemson University

Andrew H. Newman

University of South Carolina

Ivo Tafkov

Georgia State University

Date Written: September 12, 2018

Abstract

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

Suggested Citation

Hannan, Rebecca Lynn and McPhee, Gregory P. and Newman, Andrew H. and Tafkov, Ivo, The Informativeness of Relative Performance Information and its Effect on Effort Allocation in a Multi-Task Environment (September 12, 2018). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3330171

Rebecca Lynn Hannan

Tulane University - A.B. Freeman School of Business ( email )

6823 St Charles Ave
New Orleans, LA 70118
United States

Gregory P. McPhee

Clemson University ( email )

School of Accountancy
300 Sirrine Hall
Clemson, SC 29634
United States

Andrew H. Newman (Contact Author)

University of South Carolina ( email )

Columbia, SC
United States

Ivo Tafkov

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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