Management Accounting Section Midyear Meeting

The Role of Skills Development and Relative Performance Information to Support Underperforming Agents

• In Event: Social Responsibility

Abstract

We study management practices used by principals to support underperforming agents. Given the complementarities between management practices and incentive systems, we argue that principals can support underperforming agents through skills-development. We examine what information principals use to decide which underperforming agents to support. To assure positive returns to investments, we expect principals to use relative performance information and only invest in agents who miss the target but outperform peers. We exploit a unique setting where uniform targets are used for some performance measures. Uniform targets are equal for all agents and therefore do not take into account heterogenous conditions that agents face. We find that principals invest in the skills development of agents to support agents, but only if performance is below the target but better than peers. We also show that this management practice consequently help underperforming agents to improve performance on uniform targets.

Authors

• Jan Bouwens, University of Amsterdam

• Peter Kroos, University of Amsterdam

• Jingwen Zhang, Erasmus University Rotterdam