Rank Incentives: Evidence from a Randomized Workplace Experiment

Iwan Barankay, Management, The Wharton School

Abstract: Performance rankings are a very common workplace management practice. Behavioral theories suggest that providing performance rankings to employees, even without pecuniary consequences, may directly shape effort due to the rank’s effect on self-image. In a three-year randomized control trial with full-time furniture salespeople (n=1754), I study the effect on sales performance in a two-by-two experimental design where I vary (i) whether to privately inform employees about their performance rank; and (ii) whether to give benchmarks, i.e. data on the current performance required to be in the top 10%, 25% and 50%. The salespeople’s compensation is only based on absolute performance via a high-powered commission scheme in which rankings convey no direct additional financial benefits. There are two important innovations in this experiment. First, prior to the start of the experiment all salespeople were told their performance ranking. Second, employees operate in a multi-tasking environment where they can sell multiple brands. There are four key results: First, removing rank feedback actually increases sales performance by 11%, or 1/10th of a standard deviation. Second, only men (not women) change their performance. Third, adding benchmarks to rank feedback significantly raises performance, but it is not significantly different from providing no feedback. Fourth, as predicted by the multi-tasking model, the treatment effect increases with the scope for effort substitution across furniture brands as employees switch their effort to other tasks when their rank is worse than expected.

Read the full working paper here.