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Differentiation and Performance: An Empirical Investigation on the Incentive Effects of Bonus Plans

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  • Kampkötter, Patrick

    (University of Tübingen)

  • Sliwka, Dirk

    (University of Cologne)

Abstract

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.

Suggested Citation

  • Kampkötter, Patrick & Sliwka, Dirk, 2011. "Differentiation and Performance: An Empirical Investigation on the Incentive Effects of Bonus Plans," IZA Discussion Papers 6070, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6070
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    Cited by:

    1. Johannes Berger & Christine Harbring & Dirk Sliwka, 2013. "Performance Appraisals and the Impact of Forced Distribution--An Experimental Investigation," Management Science, INFORMS, vol. 59(1), pages 54-68, June.
    2. Gary Bolton & Peter Werner, 2016. "The influence of potential on wages and effort," Experimental Economics, Springer;Economic Science Association, vol. 19(3), pages 535-561, September.
    3. Eddy Cardinaels & Christoph Feichter, 2021. "Forced Rating Systems from Employee and Supervisor Perspectives," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1573-1607, December.

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    More about this item

    Keywords

    bonus payments; differentiation; subjective performance evaluation; incentives;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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