Managers' Self-Serving Incentives: Information Avoidance in Performance Evaluation
Abstract: In many organizational contexts, managers might have self-serving incentives whereby giving high evaluations to employees comes at the expense of their own payoff. In this study, I examine the impact of managers’ self-serving incentives on the collection and use of information for the purpose of subjective performance evaluation. I find that managers with self-serving incentives collect less information than managers with no self-serving incentives. When managers do collect all available information, I find that managers with self-serving incentives interpret that information in a more self-interested way by giving lower upward adjustments to employees’ compensation than do managers with no self-serving incentives. However, information avoidance under self-serving incentives is mitigated when employees propose self-evaluations and managers observe these self-evaluations afterwards. My findings increase our knowledge about the role of subjective performance evaluations in modern organizational contexts where managers might have self-serving incentives, such as business units operating as profit centers and profit-accountable teams.
Demand-driven Feedback Systems, Recordkeeping and Easy Task Prioritization
Farah Arshad and Bart Dierynck
Abstract: With the emergence of new technologies, the use of demand-driven feedback systems where employees have a choice over whether and how frequently they want to get feedback is increasing. In this study, we experimentally examine individuals’ tendency to choose easier tasks over difficult tasks (labelled as easy task prioritization) as an unintended consequence of demand-driven feedback systems. We find that demand-driven feedback systems lead to a higher easy task prioritization and that recordkeeping can reduce the easy task prioritization induced by demand-driven feedback systems. In an extension of the main experiment, we examine whether easy task prioritization can be reduced by further modifications to demand-driven feedback systems, i.e. when employees can plan what tasks to do (planning) and the system suggests the next task based on the plan (dynamic sequencing). However, these modifications do not have an incremental effect over recordkeeping in reducing the easy task prioritization. Our study uncovers how modern accounting systems influence task selection and tests how demand-driven feedback systems could be modified to mitigate the unintended consequences of demand-driven feedback systems.
Facing a Calibration Committee: The Impact on Costly Information Collection and Subjective Performance Evaluation
Farah Arshad, Eddy Cardinaels and Bart Dierynck
Abstract: Recently, many organizations have installed calibration committees to review and adjust subjective performance evaluations of supervisors about their employees. This study uses an experimental setting to examine the impact of calibration committees on supervisor evaluation behavior. We predict and find that a calibration committee instigates supervisors to collect costly additional information that helps to better explain the performance of their employees. We also find that through supervisors’ collection of costly additional information, the presence of a calibration committee allows supervisors to distinguish between employees based on the variation in underlying performance between employees. We also study the impact of the composition of calibration committees and find that the presence of a third party (i.e. HR-manager) in the calibration committee leads to better information transfer during discussion in the calibration committee. Specifically, supervisors are less likely to anchor on their initial ratings and more likely to consider other supervisors’ information about employees to reach a consensus about their evaluations when a third party is present. Our study provides new insights about calibration committees by eliciting behavioral mechanisms that instigate supervisors to make more thorough evaluations.
Does Managerial Reporting Still Matter? An Experimental Investigation of Laboratory Hierarchies
Farah Arshad, Bart Dierynck and Victor van Pelt
Abstract: Over the past several decades, technological advancements in information technology and data science have increasingly enabled firms to produce and distribute information, which challenges long-standing ideas about the role of managerial reporting in firms. We design a series of laboratory hierarchies to examine whether granting reporting responsibility to managers has a purpose beyond eliciting information from managers. Using three experimental treatments, we disentangle the different effects produced by managers' reporting choices, and we establish that granting managers responsibility for reporting may have a purpose beyond the elicitation and distribution of information managers possess. We discuss the implications of our findings for managerial reporting research and practice.
Doing Well While Doing Good: Do Firms’ Profit Motives for Doing Good Matter to Employees?
Farah Arshad and Joel Berge
Abstract: Making profits while doing good is becoming a popular approach to corporate social responsibility (CSR) in many firms. In this paper, we use experiments to investigate whether this win-win approach to CSR has consequences for employee’s perceptions of their employer and their opportunistic behavior. In Study 1, participants are presented with scenarios of a hypothetical firm. We find that participants’ perceptions of moral integrity and opportunism of the hypothetical firm are significantly less favorable if the firm engages in win-win CSR compared to engaging in more philanthropic CSR, which does not have apparent profit motives. We also find that participants perceive that the employees of the hypothetical firm that engages in win-win CSR are more likely to misreport in such a firm. In Study 2, we conduct a field experiment with 1,500 employees to investigate the spillover effects on actual employee opportunism. Despite finding significant changes in employees’ perceptions of their employer, we find that neither win-win CSR nor philanthropic CSR affect employee opportunism compared to a baseline. Instead, we find that engaging in win-win CSR significantly increases the employee turnover-rate compared to philanthropic CSR. Supplementary analysis provides an explanation for why we observe no treatment effects of win-win CSR on employee opportunism; engaging in win-win CSR affects the perceptions of the moral integrity and opportunism of employer (mediators) in an opposite manner such that they offset each other, resulting in no overall effect of win-win CSR on employee opportunism. Collectively, our results suggest that adding an apparent profit motive to CSR initiatives undermines employees’ positive perceptions of engaging in CSR and reduces the firm’s attractiveness as an employer, but does not seem to directly affect actual opportunistic employee behavior.