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Promotion, Relative Performance Information, and the Peter Principle

Fri, October 9, 3:45 to 5:15pm, TBA

Abstract

I examine the effects of providing workers with relative performance information (RPI) on employers’ promotion decisions and the impact of those decisions on worker performance. In my experimental setting, the job after promotion requires higher-level abilities than the current job. I find that workers increase their effort to improve their current job performance after a promotion opportunity is announced because they expect this to increase their chances of promotion even though the new task requires higher-level abilities. Moreover, because employers anticipate that workers who have RPI will react negatively if they see that the best current job performer is not promoted, employers promote the best current job performer rather than the worker best suited for the next job more often when workers are provided with RPI than when they are not. Finally, consistent with the Peter Principle, I find that when workers are provided with RPI, the promoted worker’s performance is lower after promotion because the promoted worker lacks the ability to perform the new job well. My results suggest that providing workers with RPI can have a downside that offsets the benefits documented in previous studies.

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