The Effect of Target Transparency on Managers’ Target Setting Decisions

This study investigates, via two experiments, the effects of target transparency, which reflects employees' knowledge about each other's targets in an organization, on managers' target setting decisions. We also investigate whether this effect depends on the need for help among employees. We predict and find that target transparency and need for help interact to influence managers' target setting decisions. Target transparency increases target levels when the need for help is low, but not when it is high. Further, target transparency leads managers to differentiate less between individual employee targets. This reduction is greater when the need for help is high than when it is low. Additional analyses support our theory by revealing that managers strategically set targets in a way that is consistent with an intention to motivate both effort at the individual level and help among employees when such are needed. Our results help explain anecdotal evidence of why companies that value help among employees often make targets transparent throughout the entire organization

Managerial Discretion and Task Interdependence in Teams

This study investigates whether task interdependence in teams alters the effectiveness of managerial discretion in motivating team performance. Teams are particularly useful when employees' tasks are interdependent—that is, when the degree to which the increase in team performance resulting from a team member's effort depends on the effort and skills of the other team members. The reason is that the more interdependent tasks are, the more employees need to coordinate their actions and help one another to achieve their objectives. Prior research analyzing settings where task interdependence is absent suggests that providing managers with discretion over team bonus allocation can improve team performance relative to equal team bonus allocations because it strengthens the link between contributions to team output and rewards. Economic theory suggests that managerial discretion will also improve team performance when task interdependence is present and information is efficiently used. However, we use behavioral theory to predict that managerial discretion is less effective in the presence of task interdependence, because managers do not fully incorporate all relevant information into bonus decisions and because managerial discretion hurts coordination and helping, which is particularly problematic under task interdependence. We find that while discretion over compensation has a positive effect on team performance relative to equal bonus allocation when task interdependence is absent, it has a negative effect when task interdependence is present. Additional analyses provide support for our underlying theory. Results of our study contribute to both theory and practice by suggesting that, ironically, managerial discretion may be most useful when the potential benefits of employing teams are lowest and least useful when the potential benefits are highest. Our results help explain why firms often grant managers only partial or no discretion over team members' compensation

The Effect of Past Performance and Task Type on Managers’ Target Setting Decisions: An Experimental Investigation

This study investigates how performance-to-target (exceeding vs. missing prior target) and task type (ability-driven vs. effort-driven) affect manager’s target setting decisions in a setting in which a manager sets targets for multiple employees. We predict that target adjustments are greater when the prior target is exceeded than when it is missed, especially when the task is ability-driven rather than effort-driven. Additionally, we predict that target difference, i.e., the difference in target levels between stronger and weaker performer within the firm, is larger when task is ability-driven than when it is effort-driven and that this effect is attenuated when prior targets are missed compared to when they are exceeded. Our findings, from an experiment using executives from an EMBA alumni program with, on average, more than 16 years of professional work experience as participants, support our hypotheses as well as the underlying theoretical process. As prior empirical findings are inconclusive in this area of reseach, we contribute to the literature by providing controlled experimental evidence about the asymmetric nature of target adjustments when prior targets are exceeded vs. missed. Additionally, we identify an important factor that affects managers’ target setting decisions — task type — that has been neglected in prior work

Mutual Monitoring and Team Member Communication in Teams

Prior research suggests that team member communication based on mutual monitoring can improve team performance by enabling the manager to more closely relate individual team members’ contributions to their rewards. Given that diverse work settings affect the ability of team members to observe each other, this study investigates whether the benefit firms can extract from such communication is affected by differences in the type of information available to team members. Specifically, we investigate whether team members’ observations of each other’s effort, output, or both effort and output levels affect the usefulness of team member communication and, thus, team performance. Consistent with our predictions, our experimental study finds that team performance is higher when team members can observe only each other’s effort level than when they can observe both each other’s effort and output levels; however, team performance is lower when team members can observe only each other’s output levels than when they can observe both each other’s effort and output levels. The intuition behind these results is that the type of observable information creates different degrees of ambiguity regarding fair rewards for team members’ contributions, and thus, the usefulness of the communication to the manager in relating individual team member contributions to their rewards. Results of our study contribute to both theory and practice by enhancing our understanding of the role of team member communication based on mutual monitoring in motivating effort in teams, and particularly, how its efficacy is affected by the type of information available to team members prior to communication

Mutual Monitoring and Team Member Communication in Teams

Prior research suggests that team member communication based on mutual monitoring can improve team performance by enabling the manager to more closely relate individual team members’ contributions to their rewards. Given that diverse work settings affect the ability of team members to observe each other, this study investigates whether the benefit firms can extract from such communication is affected by differences in the type of information available to team members. Specifically, we investigate whether team members’ observations of each other’s effort, output, or both effort and output levels affect the usefulness of team member communication and, thus, team performance. Consistent with our predictions, our experimental study finds that team performance is higher when team members can observe only each other’s effort level than when they can observe both each other’s effort and Output levels; however, team performance is lower when team members can observe only each other’s output levels than when they can observe both each other’s effort and output levels. The intuition behind these results is that the type of observable information creates different degrees of ambiguity regarding fair rewards for team members’ contributions, and thus, the usefulness of the communication to the manager in relating individual team member contributions to their rewards. Results of our study contribute to both theory and practice by enhancing our understanding of the role of team member communication based on mutual monitoring in motivating effort in teams, and particularly, how its efficacy is affected by the type of information available to team members prior to communication

Mutual Monitoring and Team Member Communication in Teams

Prior research suggests that team member communication based on mutual monitoring can improve team performance by enabling the manager to more closely relate individual team members’ contributions to their rewards. Given that diverse work settings affect the ability of team members to observe each other, this study investigates whether the benefit firms can extract from such communication is affected by differences in the type of information available to team members. Specifically, we investigate whether team members’ observations of each other’s effort, output, or both effort and output levels affect the usefulness of team member communication and, thus, team performance. Consistent with our predictions, our experimental study finds that team performance is higher when team members can observe only each other’s effort level than when they can observe both each other’s effort and Output levels; however, team performance is lower when team members can observe only each other’s output levels than when they can observe both each other’s effort and output levels. The intuition behind these results is that the type of observable information creates different degrees of ambiguity regarding fair rewards for team members’ contributions, and thus, the usefulness of the communication to the manager in relating individual team member contributions to their rewards. Results of our study contribute to both theory and practice by enhancing our understanding of the role of team member communication based on mutual monitoring in motivating effort in teams, and particularly, how its efficacy is affected by the type of information available to team members prior to communication

Mutual Monitoring and Team Member Communication in Teams

This study investigates whether the benefit firms can extract from team member communication to the team manager, who may use such information for rewarding individual team members, is affected by differences in the type of mutual monitoring information available to team members. We predict and find that team performance is higher when team members can observe only each other's effort than when they can observe both each other's effort and output levels; conversely, team performance is lower when team members can observe only each other's output than when they can observe both each other's effort and output levels. The intuition behind these results is that the type of observable mutual monitoring information creates different degrees of ambiguity regarding what should be considered a fair reward allocation for team members' contributions. Such ambiguity reduces the usefulness of team member communication to the manager for allocating rewards, resulting in lower team performance

Team Member Subjective Communication in Homogeneous and Heterogeneous Teams

This study investigates whether subjective communication from team members to a manager responsible for allocating performance-based bonuses increases team performance and whether the efficacy of such communication is reduced in heterogeneous teams. We draw on both economic and behavioral theories to predict that communication content, even though subjective, provides information that enables the manager to allocate bonuses so as to enhance the relation between individuals’ contributions and rewards, thereby increasing individuals’ effort and team performance. However, we also predict that the positive effect of team member subjective communication is more muted when team members’ abilities are heterogeneous compared to homogeneous. We test these predictions via an experiment. Consistent with our predictions, team member subjective communication has a positive effect on team performance, and the positive effect is more muted for heterogeneous teams. Results of our study contribute to both theory and practice by enhancing our understanding of the role of subjective communication from team members to team managers in motivating effort in teams and, particularly, how its efficacy is affected by team composition