University / Organisation : UniDistance Suisse

Paper or project ? paper

Title : Use and Design of Peer Evaluations for Bonus Allocations

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Abstract : We conduct an experiment to investigate the use of peer evaluations for compensation purposes. Although organizations often rely on peer evaluations for incentive compensation, it is not well understood how peer feedback should be used and designed to ensure non-distorted evaluations and motivate effort provision. We study peer evaluations in form of bonus allocation proposals, allowing us to test our hypotheses with quantifiable data. We distinguish between a discretionary use (i.e., allocation by the manager) and a formulaic use (i.e., allocation by the team via the average) of self-including and self-excluding proposals. We find that, relative to self-including proposals, self-excluding proposals are less distorted, irrespective of use, but lead to more effort provision only under formulaic use. Under discretionary use, the benefits of self-excluding proposals are offset, as managerial biases enter bonus allocations. Our results are relevant for practitioners and researchers interested in incorporating peer evaluations into incentive compensation.