Talking About Performance or Paying for It? A Field Experiment on Performance Reviews and Incentives

Kathrin Manthei (), Dirk Sliwka () and Timo Vogelsang ()
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Kathrin Manthei: Rheinische Fachhochschule Cologne, University of Applied Sciences, D-50676 Köln, Germany
Dirk Sliwka: University of Cologne, Department of Personnel Economics and Human Resource Management, D-50923 Köln, Germany
Timo Vogelsang: Frankfurt School of Finance & Management, Department of Accounting, D-60322 Frankfurt, Germany

Management Science, 2023, vol. 69, issue 4, 2198-2216

Abstract: We investigate the causal effect of performance pay and conversations about performance in 224 stores of a retail chain implementing a field experiment with a 2x2 factorial design. In the performance pay treatments, managers receive a bonus, which is a simple linear function of the profits achieved above a threshold value. In the performance review treatments, managers have to report their activities undertaken to increase profits in regular meetings. We find that whereas performance pay did not yield significant profit increases, performance review conversations increased profits by about 7%. However, when additionally receiving performance pay, the positive effect of performance reviews vanished. We provide evidence from surveys and meeting protocols that performance pay changes the nature of conversations, leading to a stronger self-reliance of store managers, which undermines the value of the performance reviews.

Keywords: performance pay; monitoring; feedback; field experiment; management practices (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:4:p:2198-2216

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