Managers’ Choices of Performance Measures in Promotion Decisions: An Analysis of Alternative Job Assignments

56 Pages Posted: 15 Aug 2011 Last revised: 16 May 2013

See all articles by Isabella Grabner

Isabella Grabner

Vienna University of Economics and Business - Institute for Markets and Strategy

Frank Moers

Maastricht University School of Business and Economics; European Centre for Corporate Engagement (ECCE)

Date Written: May 3, 2013

Abstract

In this study, we investigate the choice of performance measures in promotion decisions. In particular, we examine the extent to which managers incorporate different performance measures for different types of job assignment. Based on a simple theoretical framework, we predict that, in making promotion decisions, the weight on current job performance decreases with increases in the change in tasks upon promotion, while the weight on subjective assessments of ability increases. This result basically follows from the premise that, with increased changes in tasks between hierarchical levels, the ability to master the current job says little about the ability needed in the next job, which makes current job performance less informative and increases the emphasis on subjective assessments. Using panel data of a retail bank, we find that individual managers behave according to our predictions. By examining the choice of performance measures in promotion decisions, we are able to provide unique insights into the incentive versus sorting roles of promotions, which has important implications for performance measurement and incentive system design.

Keywords: promotion decisions, alternative job assignments, (subjective) performance evaluation

JEL Classification: M4, M51

Suggested Citation

Grabner, Isabella and Moers, Frank, Managers’ Choices of Performance Measures in Promotion Decisions: An Analysis of Alternative Job Assignments (May 3, 2013). Available at SSRN: https://ssrn.com/abstract=1908983 or http://dx.doi.org/10.2139/ssrn.1908983

Isabella Grabner (Contact Author)

Vienna University of Economics and Business - Institute for Markets and Strategy ( email )

Frank Moers

Maastricht University School of Business and Economics ( email )

Maastricht, Limburg

HOME PAGE: http://www.maastrichtuniversity.nl/sbe

European Centre for Corporate Engagement (ECCE) ( email )

Tongersestraat 53
Maastricht, 6211LM
Netherlands

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