David Gill, Zdenka Kissová，Jaesun Lee, Victoria Prowsea

Management Science 2019, Vol. 65, No. 2

Recommend reason

Rank-order relative-performance evaluation, in which pay, promotion, symbolic awards, and educational achievement depend on the rank of individuals in the distribution of performance, is ubiquitous. Whenever organizations use rank-order relative performance evaluation, people receive feedback about their rank. Through using a real-effort experiment, this paper aims to discover whether people respond to the specific rank that they achieve. The findings have important implications for the optimal design of performance feedback policies, workplace organizational structures, and incentives schemes.

About the author

David Gill：Department of Economics, Purdue University

Zdenka Kissová：OC&C Strategy Consultants

Jaesun Lee：Department of Economics and Finance, Tongji SEM. The main research directions are behavioral economics and applied microeconomics.

Victoria Prowse：Department of Economics, Purdue University

Keywords

relative performance evaluation; relative performance feedback; rank order feedback; dynamic effort provision; real-effort experiment; flat wage; fixed wage; taste for rank; status seeking; social esteem; self-esteem; public feedback; private feedback

Brief introduction

Ranking performance is a popular approach for the business world and in the public sector. Organizations frequently use rank-order relative-performance evaluation to motivate individuals: bonuses, promotions, performance appraisals, and symbolic awards often depend on rank in the distribution of performance. In order to discover whether people respond to the specific rank that they achieve, this paper leverages random variation in the allocation of rank among subjects who exerted the same effort to obtain a causal estimate of the rank response function that describes how effort provision responds to the content of rank-order feedback.

It is founded that subjects respond strongly to the specific rank that they achieve. In particular, the rank response function is U-shaped. Subjects increase their effort the most in response to the content of rank order feedback when they are ranked first or last: the authors call this motivating effect of high and low rank “first place loving” and “last-place loathing.” Being ranked first increases effort by 21% relative to the average level of effort in the treatment group that receives rank order feedback, while being ranked last increases effort by 13%. By contrast, being ranked in the middle of the pack—that is, being ranked 9th or 10th—reduces effort by more than 10% relative to the average level of effort in the treatment group (although the effort of the subjects ranked ninth or 10th is still higher than the average level of effort in the baseline group that does not receive any rank-order feedback). This U-shaped rank response function can be explained by a combination of pride or “joy of winning” from achieving high rank together with an aversion to low rank. This paper also find that the U-shaped rank response function does not vary by gender, country of birth, age, or subject of study, suggesting that the phenomena of first-place loving and last-place loathing are not restricted to specific demographic groups, but instead are more universal in their manifestation.

The U-shaped rank response pattern that the authors find in this study has important implications for the design of effective performance feedback policies, workplace organizational structures, and incentive schemes. In particular, the design of feedback policies and organizational structures should take into account the implicit incentives generated by people’s preferences over rank. Our results suggest that ranking is particularly effective in incentivizing individuals who put in very good or very poor performances. The results highlight the value of awarding symbolic prizes to the high performers or scheduling regular appraisals with the worst performers.