Melbourne Accounting Research Seminar - Professor Eddy Cardinaels

Melbourne Accounting Research Seminar

Deans Boardroom, level 12, The Spot
198 Berkeley St, Carlton

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Mario Schabus

mario.schabus@unimelb.edu.au

T: +61 3 8344 0218

Professor Eddy Cardinaels from Tilburg University will present a MARS seminar.

Topic: Forced ranking systems from employee and supervisor perspectives

Abstract: Many firms use forced ranking systems where supervisors rank employees according to a forced distribution. In this paper we develop theory suggesting that the use of forced rankings - compared to when the supervisor is free to decide about the performance ranks - can be detrimental when supervisors have to assess subjective dimensions of employee performance like creativity, innovation or organizational citizenship. We conduct an experiment in which employees have to develop creative solutions for societal problems, and a supervisor is required to rate employees’ performance. Results show that while forced ranking induces more effort (i.e. time spent), it also creates higher stress levels for employees (i.e. measured via ex-post stress scales and bio-markers). We therefore do not find an effect of forced rankings on the employees’ creative performance. Moreover, results show that the ratings, which the supervisors give to employees, are explained less by the actual creative performance. Instead, aspects such as eloquent writing (i.e. readability indices, complex words), or strategically gaming the system (i.e., intertemporal swapping of ranks) are more important in the forced ranking than under the free ranking system. Our evidence hints at some important detrimental effects of forced ranking systems that can be damaging to companies that rely on more subjective dimensions of employee performance.