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Performance evaluation systems in which employees are compared to each other based on a relative rank are pervasive. We focus on systems in which the ranking position does not affect compensation. While prior research shows that, though unrewarded, relative performance information affects effort and performance, little is known about the design parameters of such evaluation systems. We present an experimental study that shows how adding performance category labels to ranks (e.g., good ranking position; poor ranking position) affects effort and performance. Based on goal-setting theory and regulatory focus theory, we predict and find that adding such labels increases effort and performance. The increase is more pronounced when not only positive labels are added to top ranks (“positive-only labels”), but also negative labels are added to bottom ranks (“combined labels”). The positive effects that result from using “combined labels” instead of “positive-only labels” are stronger the greater the proportion of positively labeled ranks.
Thorsten Knauer, Universitat Bayreuth
Friedrich Sommer, Universitat Muenster
Arnt Woehrmann, Universitat Muenster