Rankings, Performance, and Sabotage: The Moderating Effects of Target Setting

Abstract

Competitive performance rankings are widely used in organizations. Such incentive systems enable agents to improve their performance ranking not only by increasing their own performance, but also by undermining their competitors’ performance. While previous accounting studies have stressed the positive effect of ranking systems on managerial effort, the present paper investigates when such ranking systems may induce sabotage, and how this unintended effect can be mitigated. Our study is based on a laboratory experiment designed to investigate (a) whether competitive performance feedback increases an agent’s inclination to disrupt the efforts of competitors, in a case where ranking has no effect on compensation and (b) whether the presence of a self-set absolute performance target moderates these effects. Our results show that ranking increases both performance and sabotage. Adding an absolute performance standard appeared to reduce sabotage. However, when there is an absolute target, performance is higher in the absence of ranking. Overall, our results thus suggest that performance benefits from the use of either a relative or an absolute performance target, but not from their simultaneous use.

Acknowledgements

For providing laboratory resources, we kindly thank MELESSA of the University of Munich. We also would like to thank participants of the 77th vhb Pfingsttagung in Vienna, 2015; the 8th Conference on Performance Measurement and Management Control in Nice, 2015; the AAA 2016 Management Accounting Section Meeting in Dallas; the editor and two anonymous reviewers for their very useful comments.

Notes

1 These specific time lengths emerged from a pilot study in which we varied screen freezing times. The goal was to minimize the risk of excessive sabotaging in the case of too short freezing periods or no sabotaging at all in the case of too long freezing periods.

2 The resulting profit function is . Thus, irrespective of their performance, participants receive 0.8 eurocents for each unit of their self-set target B. Additionally, they receive a penalty of 1 eurocent for each unit of performance below the target (when they miss their target); they receive a bonus of 0.6 eurocents for each unit of performance beyond the target (if they beat their target).

3 The net score is . We thus assumed that the participants would have maintained the same performance level during the full 90 seconds they had in order to complete the task.

4 Throughout the following analysis, we focus on the ‘number of sabotaging persons’ as the measure of sabotage.

5 In the post-experimental questionnaire, participants had to indicate to what extent they agreed with the following statements using a 7-point Likert scale (which ranged from ‘don’t agree at all’ to ‘fully agree’): ‘I have performed this task in many earlier experiments’ and ‘I enjoyed performing this task.’

6 We ran several more tests to better understand why it is that in presence of an absolute performance target, performance levels are so much lower when subjects receive RPI. Specifically, given the high variance in performance levels in the target and ranking group, we analyzed whether gender, competitiveness scores, rank nervousness, and performance above/below group median would explain that variance. However, we found that none of these factors moderated the performance effects of rankings (at a significance level of p < .1): the (negative) difference in performance levels was the same across these factors.

Additional information

Funding

We gratefully acknowledge financial support from PuCnet Alumni e.V. and LMU Management Alumni.