The Retention Effect of Withholding Performance Information

50 Pages Posted: 1 Mar 2007

See all articles by Korok Ray

Korok Ray

University of Chicago GSB


It is a common practice for firms to conduct performance evaluations of their employees and yet to withhold this information from those employees. This paper argues that firms strategically withhold performance information to retain workers. In particular, if the worker enjoys high outside options and is tempted to quit, the firm chooses not to reveal his performance information to keep him on the job. The firm's equilibrium strategy is to fire if performance is sufficiently low, reveal information if performance is sufficiently high, and withhold information otherwise. The pooling equilibrium is robust under a wide variety of settings, such as general cost functions, ability-contingent outside options, nonlinear contracts, nonverifiable output, and multiple stages of production.

Keywords: Performance measurement, contract theory

Suggested Citation

Ray, Korok, The Retention Effect of Withholding Performance Information. Accounting Review, March 2007, Available at SSRN:

Korok Ray (Contact Author)

University of Chicago GSB ( email )

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