Differentiation and Performance: An Empirical Investigation on the Incentive Effects of Bonus Plans
Patrick Kampkötter and
No 6070, IZA Discussion Papers from Institute of Labor Economics (IZA)
It is often claimed that supervisors do not differentiate enough between high and low performing employees when evaluating performance. The purpose of this paper is to study the incentive effects of this behavior empirically. We first show in a simple model that the perceived degree of past differentiation affects future incentives. We then study the impact of differentiation empirically with a large panel data set spanning many firms in one industry. On average, stronger differentiation has a substantial positive effect on performance. This effect is larger on higher hierarchical levels. But differentiation may become harmful at the lowest levels.
Keywords: bonus payments; differentiation; subjective performance evaluation; incentives (search for similar items in EconPapers)
JEL-codes: D23 M52 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lab
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Forthcoming - Revised version forthcoming as "More Dispersion, Higher Bonuses?-The Role of Differentiation in Subjective Performance Evaluations" in: Journal of Labor Economics, 2018
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