According to a new paper published in Elsevier’s Management Accounting Research, firms that adopt the right performance evaluation model will be able to ensure they attract staff who are the right fit from an organisational perspective.
“Our research shows that relying on managerial discretion to evaluate employees (compared to solely relying on objective performance measures) attracts employees who identify more strongly with the organisation’s objectives,” said Dr Bart Dierynck, professor in accounting, Tilburg University in the Netherlands and co-author of the paper.
“Put more simply, when an employee knows that their manager will discretionarily adjust their performance evaluation, and, consequently, their pay, they are more likely to choose organisations whose goals they identify with.
“This discretion would be based on observations of the employee’s daily behavior, willingness to share knowledge with colleagues, unsolicited suggestions to improve company performance, etc., during their time of employment.”
The research put subjects through a scenario-based experiment whereby they were first given a task aimed at eliciting their identification (or not) with an organisational objective. As an example, the objective was carbon emission reduction.
“In the second step, a portion of the participants were made to role play employees and given the choice between a fixed-wage contract and a performance-based wage contract, with or without the possibility of a discretionary adjustment by the manager,” the research notes explained.
“In the final step, employees indicated, on a scale of 1 to 10, how much extra effort beyond their regular job they were willing to put into meeting the organizational goal, that is, finding ways to reduce carbon emissions. This effort was factored directly into their wage calculations in the performance-based model, and all employee-participants had access to those calculations.
“The researchers concluded that those who strongly identified with the organizational goal were indeed willing to expend significantly more effort towards finding ways to reduce carbon emissions. As expected then, these employees were more likely to choose performance-based pay when given the possibility of discretionary adjustment.
“Conversely, under the discretionary adjustment condition, those who weakly identified with the organisational goal were more likely to choose the fixed-pay model.”
Commenting on the findings, Dr Victor van Pelt, assistant professor in management at the WHU-Otto Beisheim School of Management, Germany, said the bottom line is that the discretionary adjustment component is designed to reward employees for going above – and – beyond their roles to help the company meet its goals. If an employee does not care for these goals, then a fixed-pay model pays better, he flagged.
“Working for an organisation with objectives that one identifies with has benefits for the organisation, employee health, and society,” Dr van Pelt said.
“Our study shows that when employees expect managerial discretion to be used to evaluate them, they are more likely to sort themselves into organisations with objectives they identify with.”
Emma Ryan is the deputy head of content at Momentum Media and editor of the company's legal publication, Lawyers Weekly.
Emma has worked for Momentum Media since 2015 and has been responsible for breaking some of the biggest stories in corporate Australia. In addition, she has produced exclusive multimedia and event content related to the company's respective brands and audiences.
A journalist by training, Emma has spent her career connecting with key industry stakeholders across a variety of platforms, including online, podcast and radio. She graduated from Charles Sturt University with a Bachelor of Communications (Journalism).