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The Effects of Disseminating Relative Performance Feedback in Tournament versus Individual Performance Compensation Plans
R. Lynn Hannan,
Georgia State University
Ranjani Krishnan, Michigan State University
Drew Newman, Georgia State University
ABSTRACT. We investigate the effects of incentive compensation scheme and relative performance feedback on performance. Our experimental results show that, in the absence of relative performance feedback, participants compensated under a tournament incentive scheme perform better, and their performance improves to a greater extent over time, compared to participants compensated under an individual incentive scheme. This finding is consistent with economic theory related to tournaments. Further, we find an interaction between incentive scheme and feedback. Specifically, providing relative performance feedback improves the mean performance of participants compensated under an individual scheme but deteriorates the mean performance of participants compensated under a tournament incentive scheme. These results have implication for the design of accounting, control, and reporting systems in firms.
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