Rankings, Performance, and Sabotage: The moderating Effects of Target Setting

Competitive performance rankings are widely used in organizations. Such incentive systems enable agents to improve their performance ranking not only by increasing their own performance, but also by undermining their competitors’ performance. While previous accounting studies have stressed the positive effect of ranking systems on managerial effort, the present paper investigates when such ranking systems may induce sabotage, and how this unintended effect can be mitigated. Our study is based on a laboratory experiment designed to investigate (a) whether competitive performance feedback increases an agent’s inclination to disrupt the efforts of competitors, in a case where ranking has no effect on compensation and (b) whether the presence of a self-set absolute performance target moderates these effects. Our results show that ranking increases both performance and sabotage. Adding an absolute performance standard appeared to reduce sabotage. However, when there is an absolute target, performance is higher in the absence of ranking. Overall, our results thus suggest that performance benefits from the use of either a relative or an absolute performance target, but not from their simultaneous use.