Essays on Performance Measure Drops and Weight Changes

Abstract

My dissertation explores performance evaluation system. Specifically, I am interested in performance measure selection and performance measure weight. Thus, I develop two essays on performance measure drops and weight changes. The purpose of my first essay is to investigate the determinants of performance measure drop which has not been fully explored yet. I examine the economic and behavioral factors that influence a performance measures drop using a performance evaluation data of state-owned enterprises (SOEs) in Korea. I find that (1) less discriminable performance measures are more likely to be dropped

(2) the lower the objective performance score is, the more likely it is to be dropped

(3) performance measures with non-participative target setting methods are likely to be dropped. This study contributes to the performance evaluation literature by identifying the determinants of performance measure life span. While most prior studies focus on performance evaluation process, this study focused on the evaluation system design process and its interactions with performance evaluation results to improve the understanding of the dynamics of performance evaluation system. My study sheds light on how the incentives of designer/raters and ratees influence performance evaluation results and hence performance evaluation system design, i.e. performance measure drop. In my second essay, I empirically investigate how ratees respond under a multi-task agency environment to the change of performance measure weights conducted by the designer of the performance evaluation system The results are as follows. First, when the designer of the performance evaluation system changes a performance measure weight, ratees change their effort on that performance measure accordingly. This result supports the multi-task agency theory that states that ratees would exert more effort on the performance measure with the increased weight because ratees could benefit more from exerting same level of effort (Brickley, Smith and Zimmerman 2009). Second, when a performance measure weight increases, ratees exert more effort when that measure is a common measure than when it is a unique measure. These results are consistent with prior studies that find that ratees would input more effort on the performance measure that can be subject to relative performance evaluation (Frederickson 1992

Matsumura and Shin 2006) and that the presence of relative performance information increases performance (Tafkov 2013). Third, ratees reallocate their effort more strongly in measures where they have high task-specific ability than in those of low task-specific ability when performance measure weights are changed. My study contributes to the performance evaluation literature. First, I empirically show the relation between incentive change and effort allocation more clearly than prior literature. Second, I also provide empirical evidence that the feedback of RPI is a useful mechanism to motivate the ratee to exert more effort. Finally, I present empirical findings that task-specific ability influences the relation between incentive and effort, which has not been empirically explored thoroughly (Bonner and Sprinkle 2002).