Winner at a Losing Game? Behavioral Consequences of Tournament-Like Promotion Systems in Audit Firms

• In Event: Behavioral Audit Research

Abstract

Tournament-like promotion systems are believed to provide high-powered incentives to employees to maximize work effort. A less frequently acknowledged consequence of tournament-type incentives, however, is that they can also trigger self-interested and strategic behaviors. Prior research on tournament-like promotion set-ups has identified two powerful design parameters that could trigger such behaviors, notably the level of competitive intensity and the relative pay differences between winners and losers. This study comprehensively tests whether these two design parameters can explain self-interested and strategic behaviors in a unique empirical context in which tournaments are highly prevalent and where behavioral risks are highly consequential, namely the audit partnership. Survey results from a European sample of non-partnered auditors suggest that the level of competitive intensity induces self-interested and strategic behaviors. Yet, contrary to expectations, the relative pay differences have no significant effect on self-interested behaviors, but negatively affect strategic behavior. Overall, our study suggests that tournament-like promotion systems in audit partnerships have unintended behavioral consequences which can have highly detrimental societal ramifications.

Authors

• Jorien Louise Pruijssers, McGill University

• Hans (J. ) van Oosterhout, Rotterdam School of Management, Erasmus University

• Pursey Heugens, Rotterdam School of Management, Erasmus University