The Effect of Relative Performance Information Under Different Compensation Contracts on Performance in a Production Task

Posted: 16 Jan 2007 Last revised: 29 Jun 2010

See all articles by Uday S. Murthy

Uday S. Murthy

University of South Florida - School of Accountancy

Date Written: May 11, 2009

Abstract

Using Social Comparison Theory as the framework, I experimentally investigate whether relative performance information (RPI) fosters performance improvement in a real-effort task. The experiment employed a 2 (RPI: yes or no) by 4 (contract type: straight piece-rate, modified piece-rate, quota, or fixed-wage contract) between-subjects factorial design with 181 student participants assuming the role of production workers. Results revealed a strong and consistently positive effect on task performance of providing ranked relative performance information, regardless of contract type. Results also revealed that the performance enhancing value of RPI was most pronounced for low performers compared to moderate and high performers. The effects of RPI were more pronounced under a fixed pay contract relative to variable pay contracts. The results of this study suggest that organizations can benefit by configuring their systems to report relative performance information on a frequent basis.

Keywords: Relative performance information, incentive schemes, real effort task, feedback, budgets, Social Comparison Theory

JEL Classification: M40, M46, M52

Suggested Citation

Murthy, Uday S., The Effect of Relative Performance Information Under Different Compensation Contracts on Performance in a Production Task (May 11, 2009). Available at SSRN: https://ssrn.com/abstract=957633

Uday S. Murthy (Contact Author)

University of South Florida - School of Accountancy ( email )

Tampa, FL 33620
United States
813-974-6523 (Phone)
813-974-6528 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/accounting/faculty/murthy/index.html

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