The Effects of Disseminating Relative Performance Feedback in Tournament versus Individual Performan

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The Effects of Disseminating Relative Performance
Feedback in Tournament versus Individual
Performance Compensation Plans
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The Effects of Disseminating Relative Performance
Feedback in Tournament versus Individual
Performance Compensation Plans

• Discussant Bill Waller (Arizona)

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Relative Performance

• Things I like about the paper

• Things I dont like about the paper

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Relative Performance

• Things I like about the paper

• Things I dont like about the paper

Todo
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Relative Performance

• Things I like about the paper

• Things I dont like about the paper

Nada
Todo
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The Effects of Disseminating Relative Performance
Feedback in Tournament versus Individual
Performance Compensation Plans
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Relative Performance
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The Effects of Disseminating Relative Performance
Feedback in Tournament versus Individual
Performance Compensation Plans
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Tournament
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Arizona 80, MSU 61
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Research Questions

• What are effects on performance of
• Incentive scheme (tournament versus
  individualistic)?
• Feedback about relative performance (none,
  coarse, fine)?
• Interaction of scheme and feedback?

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Research Questions
What's new interesting?

• What are effects on performance of
• Incentive scheme (tournament versus
  individualistic)?
• Feedback about relative performance (none,
  coarse, fine)?
• Interaction of scheme and feedback?

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Research Questions

• What are effects on performance of
• Incentive scheme (tournament versus
  individualistic)?
• Feedback about relative performance (none,
  coarse, fine)?
• Interaction of scheme and feedback?

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Research Questions

• What are effects on performance of
• Incentive scheme (tournament versus
  individualistic)?
• Feedback about relative performance (none,
  coarse, fine)?
• Interaction of scheme and feedback?

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Rank Practice

• Rank and yank
• Jeff Skilling PRC (Performance Review
  Committee)
• Forced distribution over five performance ranks
• Fire bottom rank (10)

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Rank Practice

• Projected release, February 21, 2028
• Jeffrey K. Skilling (29296-179)
• c/o
• Federal Correctional Institution
• Waseca, Minnesota 56093

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Relative Performance (RP)

• Tournament scheme outperforms individualistic
  scheme
• But dont disseminate early RP feedback (it hurts
  performance of likely losers)
• RP feedback adds social dimension to
  individualistic scheme

• Paper take-away

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Implementation problems for tournament?
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Implementation problems for tournament?
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Implementation problems for tournament?
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Implementation problems for tournament?
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Implementation problems for tournament?
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Implementation problems for tournament?
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Implementation problems for tournament?
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(No Transcript)
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Implementation problems for tournament?
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Ex ante info
self- selection
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Implementation problems for tournament?
3
Ex ante info
self- selection
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Hypotheses

• Tournament scheme gtgt individualistic scheme,
  given common uncertainty
• RP feedback generally improves performance, given
  individualistic scheme
• RP feedback (if and only if fine) impairs
  performance, given tournament scheme

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Hypotheses

• Tournament scheme gtgt individualistic scheme,
  given common uncertainty
• Should design include manipulation of common
  uncertainty (present or absent)?
• Interaction hypothesis tournament is better if
  and only if common uncertainty.
• Describe Frederickson (1992) in detail.

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Hypotheses

• RP feedback generally improves performance, given
  individualistic scheme
• Primary motivational mechanism is individualistic
  incentive scheme
• Secondary motivational mechanism is social
  comparison based on RP feedback
• Is secondary effect general or conditional on
  agents current relative standing?

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Hypotheses

• RP feedback (if and only if fine) impairs
  performance, given tournament scheme
• RP info is not strictly ex post to effort in
  experimental setup
• Tournament models assume RP outcome is ex post to
  effort (unlike experimental setup)
• Ex ante RP info has economic, and not just
  psychological, relevance to effort decision
• Even coarse RP info has some relevance

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Experimental Setup

• Why not apply a formal RPE model?
• Clarifies rational economic behavior
• Clarifies distorting effect of psychological
  factors such as social comparison and
  overconfidence bias
• Control for risk preferences?
• Measure of effort?
• Time proxy (i.e., points for unused time)
• Reflects subjects skill as well as effort

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Results

• More, please
• pattern over time (e.g., learning)
• suboptimal quantity decisions
• effort change after each quarter
• subjects perceived chance of winning tournament?
• subjects overall perceptions of scheme and role
  of RP feedback

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Results (more, please)

• Why did RP feedback hurt performance under
  tournament scheme?
• Likely winners stay in the hunt?
• Likely losers give up? (no effect on effort)
• Likely losers go for broke? (and go broke)
• Fine tune data analysis (as in Figure 2)

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Results (more, please)

• Why did RP feedback always help under
  individualistic scheme?
• Do high performers get non-pecuniary bonus and
  low performers non-pecuniary penalty?
• Are all subjects happy to know where they stand
  relative to others?
• Fine tune data analysis (as in Figure 2)

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Future Research

• Subjective probability of winning prize
• Overconfidence bias ? too much effort?
• Does RP feedback mitigate overconfidence?
• If so, is RP feedback in principals
  self-interest?
• Mixed incentive scheme
• Division manager gets bonus based on division
  income AND competes with other managers for
  promotion to top (enter out of bounds play)
• Deans Y college rankings
• Should deans rank faculty within college AND
  disseminate RP feedback?

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And the winner is