The Use of Relative Performance Evaluation at the Business Unit Manager Level

Purpose – Relative performance evaluation (RPE) is a widely studied topic in the theoretical and analytical
accounting and economics literatures. The empirical literature also addresses this topic, with its main focus on
executive compensation. This paper aims to extend the findings of the literature by assessing the extent to
which RPE is used at lower organisational levels.
Design/methodology/approach – This study uses a purpose-developed survey to gather data from 325
business unit managers.
Findings – This study finds that RPE is used to a great extent in the performance evaluation of business
unit managers. Additionally, the findings suggest that RPE use increases the informativeness of the
performance evaluation through noise reduction. Noise in the performance evaluation is described in
literature as the primary antecedent of RPE, but prior research provides only weak empirical support for this
claim.
Research limitations/implications – This study hypothesises a causal relation between RPE and
noise in performance evaluation. However, the use of cross-sectional survey data only allows testing
associations, not causations.
Originality/value – The originality and value of the paper lie in the focus on the business unit level and
the use of survey data, which are almost completely absent in this area of research that almost exclusively
uses archival data at the executive level.
Keywords Management control, Survey, Benchmarking, Performance evaluation,
Relative performance evaluation, Business unit managers