The Effects of Aggregating Performance Targets

• In Event: Human Capital Issues in Accounting

Abstract

Managers often rely on teams to achieve performance goals set by the company. It is commonly argued that companies should attempt to contract at the individual level. While setting targets at the team level invites productivity losses such as free riding, the negative effects might be offset by cooperation norms. This study explores conditions where target-setting in team environments is effective by examining the effects of disaggregate (individual) and aggregate (team) targets on effort levels in team-based production settings. Using a laboratory experiment, we predict and find support an interactive effect where aggregate targets are beneficial depending on the level of the target that is set. Our results suggest that the presumed counterproductive effects of aggregated targets only occur at very high target levels, and that setting aggregated targets is beneficial when the target levels are low and attainable. The study informs practice of potentially overlooked benefits of using aggregate targets.

Authors

• Hao He, Carroll University

• William Kazanis, University of Texas at San Antonio

• Jeremy Lill, University of Kansas

• Michael Majerczyk, Georgia State University