Relative Target Setting and Cooperation

Holzhacker, Martin; Kramer, Stephan; Matějka, Michal; Hoffmeister, Nick

doi:10.1111/1475-679x.12244

Cited by 21 publications

(5 citation statements)

References 75 publications

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“…This effect is consistent with a study described above (Hansen & Van der Stede, 2004). Chow, Cooper and Haddad (1991) Experimental Truth on Pay Schemes Dechow and Sloan (1991) Archival Analysis Ratcheting CEO Pay Defond and Park (1997) Archival Analysis Smoothing income on Future Earnings Chowdhury (2006) Archival Analysis Manager Performance and Discounts Indjejikian and Nanda (2002) Archival Analysis Meeting Targets Consecutively Holzhacker, Kramer, Matějka, and Hoffmeister (2018) Archival Analysis Relative target setting and cooperation Armstrong, Chau, Ittner and Xiao (2017) Archival Analysis Target Ratcheting in CEO incentives Brahm and Poblete (2017) Experimental Ratcheting in a Multiproduct Firm Kuroki (2018) Archival Analysis Budget Ratcheting Under Zero-Profit Incentive Cardella and Depew (2016).…”

Section: Target Adjustmentsupporting

confidence: 82%

Target Setting And Firm Performance: A Review

Yitzhaky

Bahli

2021

JABR

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The consequences of missing targets can be found on a daily basis in many organizations. As such, targets and target setting in an extremely important topic to companies and one that should receive more attention. Although the vast amount of reasons for missing targets are difficult to study, the process of setting the target which includes budgeting has been proven to affect performance and achievement through goal setting theory (Locke & Latham, 2002). Thus, targets are an important element in almost every organization (Chenhall, 2003). We focus this review of literature exclusively in the relationship between target setting and firm performance and as such consolidate, organize, and synthesize past literature in this field and provide a clear direction for future research. We further identify two impactors found to affect firm and management performance but never researched as an impactor of the relationship between target setting and firm performance. Those impactors are Transparency of targets and length of management experience. In this paper, we fill the gaps identified above and inform the study of target setting in order to spark future research on this topic. We also identify the dimensions affecting the relationship between target setting and firm performance as well as the different measurement approaches in target setting literature.

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Section: Target Adjustmentsupporting

confidence: 82%

Target Setting And Firm Performance: A Review

Yitzhaky

Bahli

2021

JABR

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“…It is worth noting that the above arguments hold because we follow Meyer and Vickers () and assume no strategic interaction between own and peer effort choice, which rules out potential weaknesses of RPE such as collusion, sabotage, or lack of cooperation (Lazear ; Gibbons and Murphy ; Lazear and Oyer ; Holzhacker et al ) . Otherwise, the manager has incentives to reduce peer performance because it increases future compensation, either through a lower target (in case of ex ante RPE) or through a more favorable assessment of current own performance relative to peer performance (ex post RPE).…”

Section: Theoretical Model and Hypothesesmentioning

confidence: 98%

Relative Performance Evaluation and the Ratchet Effect

Casas‐Arce

Holzhacker

Mahlendorf

et al. 2018

Contemporary Accting Res

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When targets depend on past performance, incentives are adversely affected by the ratchet effect. We provide theory and evidence that incorporating past peer performance into targets can alleviate this adverse incentive effect. In particular, we present an analytical model that characterizes optimal target revisions as a function of past own and past peer performance. We then test the predictions of our model using data on 2008–2010 performance targets from 354 units of a governmental agency responsible for reintegration of the long‐term unemployed into the labor market. As a unique feature of our data, we have information on peer group quality, defined as the extent to which peer performance is informative about common shocks. Consistent with our model, we find that higher peer group quality (a) increases sensitivity of target revisions to past peer performance, (b) reduces sensitivity of target revisions to past own performance, and (c) reduces the ratchet effect as reflected in managerial incentives to withhold end‐of‐year effort.

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“…Literature shows that supervisors use diverse information sources to set employees’ targets (e.g., Indjejikian and Nanda [2002], Leone and Rock [2002], Bouwens and Kroos [2011], Aranda et al [2014], Bol and Lill [2015], Holzhacker et al. [2019]). Experimental evidence by Feichter [2023] highlights the role of a supervisor's past performance in lower‐level jobs.…”

Section: Introductionmentioning

confidence: 99%

Target Setting in Hierarchies: The Role of Middle Managers

BOUWENS,

HOFMANN,

SCHWAIGER

2023

J of Accounting Research

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We explore how a supervisor's hierarchical rank affects the extent to which employees’ targets reflect their past performance. Literature documents that supervisors do not fully ratchet targets for past performance, arguably because the commitment not to penalize successful employees with more difficult targets alleviates the severity of the ratchet effect. We argue that commitment is less credible in organizational hierarchies where a middle manager sets employees’ targets. Using data from an organization comprised of three hierarchical layers, we consistently find that a middle manager's exposure to performance pressure is positively associated with the ratcheting of the employees’ targets. Moreover, we show that management at headquarters reduces a middle manager's performance pressure when most of her employees missed their targets in the previous period. Overall, the results imply that the hierarchical rank is an important determinant of the credibility of a supervisor's commitment to deemphasize past performance in target setting.This article is protected by copyright. All rights reserved

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Relative Target Setting and Cooperation

Cited by 21 publications

References 75 publications

Target Setting And Firm Performance: A Review

Target Setting And Firm Performance: A Review

Relative Performance Evaluation and the Ratchet Effect

Target Setting in Hierarchies: The Role of Middle Managers

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