In a time when many companies are experiencing high rates of voluntary turnover and struggling with attracting and retaining talents in a more and more volatile and competitive environment, securing the commitment of employees to the organization seems pivotal to support retention and discourage turnover. Organizational commitment is basically the extent to which employees identify themselves with their organizations and participate with it.

While there are various economic and non-economic factors influencing organizational commitment, how organizations try to retain talents, and how they compensate them are among such influential factors. Salaries are shown to be the biggest cost for businesses in the U.S. in 2016 according to the Bureau of Economic Analysis which makes up for 43.4% of the total values of the produced goods and services; therefore, organizations may want to make sure that they are setting equitable salaries that satisfy employees and assist them in achieving the strategic goals. In fact, how employees react to their salary, that is pay satisfaction, is of quite importance as it may influence their commitment. Therefore, it is of interest to understand how organizations can influence employee satisfaction with their pay.

What influences employee pay satisfaction?

To answer this question, Yao and colleagues (2018) considered employees’ pay satisfaction to be shaped by the amount of money employees receive -pay level- and the amount they think they should receive in comparison to their standards -pay discrepancy. To test this, they surveyed 481 full-time employees who worked in different sectors in the U.S. Specifically, they measured pay discrepancy against four comparison standards, assessing the perceived discrepancy between participants’ reported salary and a) the minimum annual salary that they would find acceptable for the job; b) the salary of a colleague; c) the market average annual salary for people with similar jobs in the region; and d) the perceived annual salary they should receive.

The results showed that both pay level and pay discrepancy influence employee pay satisfaction, meaning that a higher salary and the perception to be paid more than the comparison standards boost satisfaction with pay. More interestingly, they found that the influence of pay discretion on pay satisfaction was stronger when pay level is low, as opposite to high, which means that perceiving to be overrewarded is more important that the blatant amount.

In the case where there is no discrepancy, that is when the pay level matches the comparison standard, Yao and colleagues showed that employees would be dissatisfied with their pay when this is low. In the case where the pay level is higher that the comparison standard, that is when the employee is overpaid, the researchers found that overpayment actually increases employee pay satisfaction. This contradicts past studies that had shown overpayment results in demoralizing employees by increasing their guilt.

In another study, Luna-Arocas and colleagues (2020) aimed to find out how pay satisfaction, viewed as an economic factor, contributes to the success of an organization by supporting employee loyalty alongside a non-economic factor, that is the employee perception of the talent management strategies used by the business. The researchers collected data from 198 Spanish workers from both public and private sectors via a questionnaire. They showed that pay satisfaction, defined as being satisfied with pay-level (the income), positively influenced organizational commitment. They also found that that talent management strategies such as job autonomy/empowerment, task significance, job feedback, and talent management development, while having a direct positive effect on employee commitment, also had an indirect effect on it via increasing pay satisfaction.

Organizational implications

In order to keep employees committed to their organizations, the following points are recommended:

• Organizations should take both economic and non-economic factors into consideration if they want to boost employee commitment. So, monetary compensation should not be used as an exclusive method to motivate employees and HR practitioners are recommended to mix various compensation methods. HR practitioners need to implement talent management strategies to identify, attract and retain talents and they need to complement such strategies with clear policies for financial compensation.

• Increasing pay level is obviously a good strategy to increase employee satisfaction with pay. However, if and when limits to increase pay levels apply, knowing the comparison standards used by people with reference to their pay is important. In fact, when low pay levels are offered, individuals are still satisfied with their pay if they feel high pay discrepancy versus their standards.

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References:

Luna-Arocas, R., Danvila-Del Valle, I., & Lara, F. J. (2020). Talent management and organizational commitment: The partial mediating role of pay satisfaction. Employee Relations, 42(4), 863–881. https://doi.org/10.1108/ER-11-2019-0429

Yao, A., Locke, E. A., & Jamal, M. (2018). On a combined theory of pay level satisfaction. Journal of Organizational Behavior, 39, 448–461. https://doi.org/10.1002/job.2243

The last years were characterized by a vivid debate about the persisting gender gap in rewards – and mass media attention is fueled around this topic also by symbolic, and very telling, actions – such as the identification of the “Equal Pay Day”. This commemorative day has slightly different characterization across the globe. In Italy, Equal Pay Day indicates the day that women would have to start working in that year, if their effort was to match the salary they receive. In 2023 this was February 11th and essentially, this means that women had worked “for free” for more than a month, from January 1st to February 11th. That large is the difference between their average salary and men’s average salaries! In the USA, Equal Pay Day takes a complementary interpretation. It indicates how far into a new year women must work to be paid what men were paid the previous year. For 2023, US women have to work until March 14 to achieve what US men have made in 2022.

Statistics are striking and speak loudly. Yet, to move beyond the outrage that these numbers sparkle, we need to ask how we got there and what can be done to twist this situation.

Which are the systemic and contextual factors associated with the gender pay gap, so that we can intervene on those?

Joshi, Son and Roth (2015) conducted a meta-analysis -a statistical analysis that combines the results of multiple studies on a specific topic- to identify attributes of the workplace context that are associated with sex differences in organizational rewards, broadly considered as encompassing salary level and salary increases, bonuses and other incentives, and number of promotions. The strongest point of this study is the bridging of two, historically separated, traditions of study: one that emphasizes the socio-psychological foundations of gender bias, and the other that underlines the role of institutional and structural factors for gender equality.

They found that the difference between men and women in performance evaluations (i.e., supervisors’ evaluations of what individuals do and whether they contribute what is expected of them at work) was only slightly in favor of men. This average difference was not only small, but also extremely variable across contexts, such that in different occasions women outperformed men (or better, we should say, were evaluated more positively, if we are not to equate evaluations with objective data; see Digest 22).

The second basic result of the meta-analysis concerns the difference between men and women in organizational rewards. In this case, the male advantage was way larger (14 times the difference in evaluations!) and was statistically significant. In other words, while context features can exacerbate or reduce the differences, the male advantage is always present.

Testing the impact of factors that can explain this phenomenon, and particularly factors that pertain to psychosocial bias, the researchers report that the performance evaluations received by men and women did not explain their different rewards. Hence, men are on average overrewarded, and this does not depend on their performance evaluation - or the supervisors’ bias thereof we could add.

Instead, the contextual factors predicted when men are overrewarded as compared to women. This happens, to some extent, in occupations that are more prestigious (e.g., executives and primary care physicians among those included in the study) and when the job performed is highly complex (i.e., it requires solving complex, novel and ill-defined problems, for which the person enjoys great degrees of discretion and autonomy). To a much larger extent, however, the phenomenon of men receiving more organizational rewards is explained by structural factors, namely the proportion of men in an occupation and the proportion of women at executive or senior manager levels within the industry. As expected, the greater the proportion of men in the occupation, the larger the gender gap in rewards. On the opposite, the larger the proportion of women in top positions at the industry level, the lower the gender gap.

Who needs more evidence that quotas work?

Organizational implications

• As many organizations have started to realize, reducing the gender reward gap starts with seemingly unrelated actions. Some of these, for example, include specific vocational training and targeted employer branding initiatives that aim at enlarging the pool of female workers to be recruited in occupations that are traditionally “male”. 

• Quotas for female executives and senior manager positions seem to be a powerful driver of institutional and cultural change. As this study showed, such interventions do not work just for those directly involved, by reducing the reward gap at the top, because an equal number of women get promoted (and promotions are part of an organization’s rewards). The consequences of these actions are more far-reaching, and reverberate on the lower hierarchical levels by sending a signal, providing greater access to other women to enter the industry (in addition to career-related support) and likely raising attention on issues of gender inequality (including in rewards).

• More systemic interventions need to be put in place, as compared to the typical training programs aimed at reducing bias in evaluators (see for example Digest 16). While these programs are important, they alone will not alter the reward gap. As the study showed, the gender gap in evaluations is, in fact, quite small – which is encouraging in that many steps have been made; yet the reward gap is unaffected.

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Reference: Joshi, A., Son, J., & Roh, H. (2015). When can women close the gap? A meta-analytic test of sex differences in performance and rewards. Academy of Management Journal, 58(5), 1516-1545. https://doi.org/10.5465/amj.2013.0721

Organizations use incentives, such as pay-for-performance, to motivate their workforce (see Digest 38) sometimes without realizing that this may also be harming employees’ intrinsic motivation, that is their inner drive to work because they enjoy, value, and identify with the job. Academics have described this phenomenon of extrinsic rewards overruling intrinsic motivation as “crowding out”. It is crucial to emphasize the modal verb “may” here, because research does not seem to have an unequivocal answer to whether incentives really damage intrinsic motivation or not. What seems more important for motivation than the incentive itself is an employee’s perceptions of how fairly this is distributed in the organization (that is, procedural fairness). Managers, inevitably, can influence such perceptions in light of their responsibility of assigning bonuses. Moreover, managers are more and more encouraged to use their discretion in managing people in light of the so-called HR devolution, which decentralizes HR practices to give managers greater control and freedom over HR practices and processes, including handling the reward system.

At first thought, managerial discretion in reward allocation may sound like a very bad idea, as it can look detrimental to employee perceptions of procedural fairness. In other words, a manager who exerts personal discretion when deciding on bonuses as opposed to relying on standardized, objective reward systems may appear unfair. However, performance is a complex matter, often difficult to capture through objective tools, hard to quantify, and underpinned by many different factors; therefore, managerial judgment is essential to recognize an employee’s unique contribution to an organization. For instance, managers can observe the impact of each individual on the organization, and they also have an overview of the contextual factors that may have influenced their collaborators’ performance, allowing them to form a more rounded assessment to compensate their employees. Consequently, when individuals receive a bonus based on managerial discretion, they may perceive this as a fair way to reward their added value to the organization. Even better, their intrinsic motivation, which is particularly cherished when individuals feel valued, is boosted.

… Does research back up this counter-intuitive idea that something so idiosyncratic as managerial discretion can support employees’ perceptions of fairness and their intrinsic motivation?

Hewett and Leroy (2019) conducted three empirical studies to understand when managerial discretion can enhance fairness, ultimately resulting in higher intrinsic motivation. Their first study aimed at clarifying the concept of perceived managerial discretion in bonus allocation. This refers to the employees’ perceptions that their manager professionally used their evaluation of performance-relevant information to distribute rewards. Managerial discretion is different from personal bias, which is a manipulation of the evaluation based on performance-irrelevant information such as personal characteristics of the employee (e.g., gender or age). The authors provide a clear example of perceived managerial discretion. Consider an employee who fails to achieve his/her annual sales target, to which the bonus is attached, because they have been working on developing a relationship with a client with important long-term benefits for the organization, which has resulted in delaying sales. The manager decides to award the bonus to the employee anyway to recognize the long-term perspective and their value to the organization. In such a situation, the employee would perceive that the manager exerted their discretion to allocate rewards.

The second study was an experiment conducted with MBA students from a University in the Netherlands to understand whether perceptions of managerial discretion could be favorable when employees benefit from this discretion, that is when they receive the bonus (spoiler alert: the answer is yes). Participants randomly received different scenarios where fictitious employees were attributed low vs. high bonuses and managers had low vs. high discretion in this decision. They then needed to assess the fairness of how the bonus was allocated. The results showed that higher bonuses increased procedural fairness only when the perception of managerial discretion was high, meaning that managerial discretion enhances perceptions of fairness in the workplace when associated with high incentives.

Finally, the researchers conducted a field study by surveying employees of a UK service organization that adopted pay-for-performance incentives. They not only confirmed the above results but also found that managerial discretion was beneficial for intrinsic motivation. In fact, bonuses fostered fairness, which, in turn, led to motivation, but only when employees perceived that their manager exerted discretion in allocating the incentives.

Organizational implications

• Due to the complexity of evaluation performance, managers should not be afraid of using discretion when allocating bonuses in light of its positive effects on perceptions of procedural fairness and intrinsic motivation. However, they should be aware of the conditions of this discretion, that is it bears beneficial effects only when favorable bonuses are distributed.

• It is important to educate managers on what managerial discretion in a performance management system is, encouraging them to base their judgment on performance-relevant information. Training on cognitive biases and political manipulations is recommended.

• Organizations and HR managers should prioritize the principle of equity in the reward system and acknowledge that standardized procedures may be more harmful to employee motivation than idiosyncratic ones (if these are inspired by agreed-upon principles and coherent with the organizational culture). Therefore, they should recognize the importance of empowering managers to use their discretion in reward decisions.

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Reference: Hewett, R., & Leroy, H. (2019). Well it’s only fair: How perceptions of manager discretion in bonus allocation affect intrinsic motivation. Journal of Management Studies, 56(6), 1105-1137. https://doi.org/10.1111/joms.12445

Performance appraisals (PA) constitute the bases for distributing several types and combinations of bonuses and incentives (see Digest 38). However, the use of bonuses may not always be all sunshine and roses as it may result in internal competition and self-interested behaviors among employees to manipulate performance ratings to gain bonuses (to read more about the unexpected effects of incentives check out Digests 40 and 42). This is especially the case when incentive systems have been poorly designed. For example, setting “aggressive” goals for employees may lead to unethical behaviors and unwanted consequences by directing employee attention exclusively on goal attainment, at the expense of other considerations. Therefore, employees can lie, cheat, or break the rules to achieve their goals and benefit themselves, violating norms of organizational justice and actively contributing to the creation of an unjust environment. For instance, an employee may well meet a $50,000 sales set incentive, but slash the price of the sold product to achieve such a goal, causing no profit for the firm. As another example, an employee may meet the customer satisfaction metric for the bonus, but manipulate the satisfaction survey results by only asking extremely satisfied customers to fill out the survey.

Such cheating and transgressive behaviors, not only lead to negative organizational outcomes but may also harm those employees who act ethically to achieve the goals, hurt their feelings towards the fairness of the PA and incentive systems, and, generally, influence their reactions to such systems. Furthermore, as we know that the culture of an organization influences the PA (see Digest 12), it is important to understand whether the way people respond to transgressions and cheating to get bonuses changes based on the values of a firm.

So, how do generally people react when goals and related bonuses are achieved via unethical behaviors? And how do organizational values influence these reactions?

To address these questions, Oberman and colleagues (2022) conducted a scenario-based study in the US in which 256 respondents were presented with seven fictitious sales employees who were either eligible or ineligible for receiving a bonus based on whether they met the metrics for sales and customer satisfaction. Respondents were also presented with how each of these seven sales employees achieved/did not achieve the goals, that is ethically vs. unethically. Then respondents had to rank the seven employees from the most deserving of a bonus to the least deserving. To account for the organizational values, the researchers conducted the study in a Christian publishing organization (52 participants), assuming that its members will share universalistic, religious-based values, and in a Secular organization (204 participants).

The results showed that participants ranked lower employees who behaved unethically against the shared norms of organizational justice to achieve the incentive goals, especially when these unethical behaviors compromised important organizational outcomes, functions or relationships. On the contrary, rankers rewarded employees who did not engage in dishonest activities and conformed to norms of organizational justice. Moreover, rankers tended to recompense employees who were negatively affected by unjust organizational procedures and practices and to punish those who benefitted from them instead. Finally, the researchers found that participants from religious-based organizations penalized employees who violated norms of personal morality (for instance, lying to get the bonus) more than participants from secular organizations.  

Organizational implications

In designing bonus and incentive plans, HR practitioners and managers need to pay attention to the following:

• Caution should be exercised when designing and distributing bonuses and incentives based on PA as this can impair perceptions of organizational justice.

• While goal attainment is key for organizations, connecting incentives to aggressive goal setting might lead to unethical behaviors. Managers should set goals that are challenging but ethically achievable or HR practitioners should design a do-your-best system of rewards.

• While bonuses given on harsh goal attainment may lead to unethical behaviors, rewarding ethical behaviors to avoid this might also have negative consequences (check out Digest 40). Therefore, the HR system should be designed in a way that discourage unethical behaviors altogether rather than making corrections by rewarding ethical behaviors.

• Since organizational culture and values impact employees’ perceptions of justice, incentive systems should be designed based on their fit with such values rather than solely relying on “off- the-shelf” programs.

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Reference: Oberman, W. D., Morrisette, S., Hunt, I., & Edwards, Y. (2022). Cheating, culture and incentives: Who deserves a bonus? Personnel Review, 51(1), 98–117. https://doi.org/10.1108/PR-04-2020-0232

Promotions typically appear as part of the last phase of a performance management cycle, which is the “reward” phase. Promotions can either be seen as “tangible” or “intangible” rewards. In many cases, they are “very” tangible when associated with pay increases (often due to the upward movement to a job that is at a higher salary level); they are also more concrete signs of appreciation than verbal praises and recognitions. On the other hand, promotions can be considered “intangible” rewards, linked to an employee’s career development, as opposed to financial incentives often distributed on an annual basis (see Digest 38 for different types). Promotions and incentives can also be differentiated from a psychological perspective of those who give and receive them. Incentives are the typical example of extrinsic motivation, and research supports their motivating effect; they also show a “sorting effect” (see Digest 38) by actually increasing the turnover of those individuals who do not perform well. Hence, incentives are not really an instrument for retention. To this end, promotions may be a more useful tool because they are part of the psychological contract, that is the unwritten and implicit contract (complementary to the legal one) an employee and an employer stipulate based on reciprocal promises and expectations. Indeed, promotions are often used by organizations to boost employee retention and employee engagement, but the questions are: 

Do job promotions have a motivational effect? And do they have side-effects?

Two recent scientific studies have offered empirical bases to answer these questions.

In one study, Dutta and colleagues (2021) examined the effects of promotions and incentives on individuals’ attitudes in the workplace. They surveyed over 700 employees of a multinational company in India specialized in energy storage and management, and examined how their job satisfaction, intention to stay with the organization (as opposed to turn-over) and intention to strive (an indicator of their motivation at work) changed after receiving a promotion and/or annual financial incentives for their performance.

They found that promotions and end-of-year financial incentives were associated to each other only moderately, meaning that they do not always occur together. Furthermore, they have different effects on individual attitudes when offered in combination. Job satisfaction and intention to stay increase when receiving a promotion, regardless of whether an annual incentive is received or not. On the other hand, the way intention to strive (that is, the motivation to persist and put in significant effort in one’s job activities) is influenced by a promotion depends on tangible rewards. When promotions are offered together with annual incentives, the intention to strive increases; conversely, when promotions are offered in isolation from annual incentives, intentions to strive decreases. In interpreting these findings, it is also important to note that there may be a gender confound, because over 90% of the respondents in this study were men.

In a second study, Zhu and colleagues (2022) explored the “de-motivating” effect of failed promotions: that is, whether people reduce their work engagement once they fail to be promoted. The authors conducted three different studies in China (namely, two survey-based studies across organizations and industries, and an experimental scenario-based study) to enhance the trustworthiness of their findings.

All three studies showed that promotion failure brought about a decrease in work engagement via two mechanisms: (1) an emotional one whereby people felt greater anger; and (2) a cognitive one whereby people started to doubt their abilities and decreased their perceived self-efficacy. The experimental study added another interesting element to the picture by revealing that those effects are -respectively- mitigated or exacerbated by the perceived fairness of the promotion procedure. When this is considered fair, people experience less anger probably because they can make better sense of why and how the decisions were made. On the other hand, a promotion procedure that is considered fair has a further debilitating impact on one’s perceived self-efficacy. While people may tend to attribute their failures to external events or agents, it becomes more difficult to activate these defense mechanisms when the procedures are well designed and implemented (and so, seen as fair).

Organizational implications

Just as any other tool, particularly in the reward management and compensation domains, promotions are not a panacea, and the following points should be considered by organizations:

• Promotions are mostly effective at increasing job satisfaction and retention. To exert a motivational effect, and hence improve the level of effort that employees invest in their work, promotions need to be accompanied by financial incentives. Put differently, rewarding an employee with greater status and a higher job title will make them feel appreciated and willing to remain with the company, but will not motivate them to work unless combined with a monetary reward.

• Promotion procedures should be designed and implemented fairly and should be communicated clearly to the employees who go through the promotion process. This will reduce anger reactions after a failure.

• Promotions can be highly demotivating for those who fail at achieving them. To prevent a boomerang effect on the motivation and performance of talented individuals (because people considered for promotions are certainly high-performers) it is important to offer them support systems such as coaching programs. Such programs are important both before the promotion procedure (to prepare them at best for being selected for the higher positions) and after (to design tailor-made challenges to restore their work self-efficacy).

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References:

Dutta, D., Kumar, K. K., & Mishra, S. K. (2021). Unintended consequences of promotions: Importance of annual incentives for performance management systems. Human Resource Management, 60, 787-801. https://doi.org/10.1002/hrm.22062

Zhu, Z., Chen, X., Wang, Q., Jiao, C., & Yang, M. (2022). Is shooting for fairness always beneficial? The influence of promotion fairness on employees' cognitive and emotional reactions to promotion failure. Human Resource Management, 61, 643-661. https://doi.org/10.1002/hrm.22110

Pay-for-performance (PFP) is often used by organizations as part of their compensation system and, if well designed, is a powerful tool to increase employee performance and attract and retain the best talent (see Digest 38). However, PFP can come with a dark side, as it may generate feelings of inequity and unfairness (see Digest 39), decrease creativity (see Digest 40), and even cause mental health problems, such as depression and anxiety, among workers. A recent book by the famous Stanford Professor Jeffrey Pfeffer also discusses how management practices that are intended to increase productivity may do so (or even fail!) at the expenses of workers’ health.

A wide array of reasons can explain why PFP could lead to poor mental health in all employees except top performers. First, PFP plans are likely to increase employees’ perceptions of risk and uncertainty; push them to compare themselves, their outputs and the related pay with their colleagues, producing feelings of inequity and envy; and cause stress by endorsing a vision of time as money. Second, PFP can bring a cultural shift in organizations by encouraging competition at the expense of pro-social behaviors – and we know that supportive and cooperative cultures are key to foster well-being (see here for an example). Third, PFP affects income by reducing the wages of low performers, which inevitably takes a toll on their mental health by making them worry about the future. Finally, PFP could promote greater risk-taking behaviors, leading to more accidents and injuries in the workplace, and dysfunctional coping – that is, people trying to deal with the stress of PFP through drug and alcohol abuse. It is apparent how this can backfire and threaten both physical and mental health. While all these immediately appear as understandable arguments, and may even be easily linked to anecdotical evidence, scientific evidence would be needed. 

Does PFP really harm employees’ mental health? How serious and lasting are its effects? Are some employees more vulnerable than others?

Answering these questions is crucial to protect employees and limit the well-known organizational, economic and social costs of ill-being, including absenteeism, presenteeism, medical costs, and spill-over effects in the community. To this purpose, Dahl and Pierce (2020) took advantage of publicly available data on the Danish population and conducted a unique study on 318,717 full-time employees at 1,309 firms between 1995 and 2006. They analyzed the evidence linking the organizational adoption of PFP to the employee use of medications to treat anxiety and depression as prescribed by a medical doctor following a diagnosis.

The researchers found that, after organizations introduce PFP, the use of mental health medications increases by 5.7% among their employees, suggesting that individuals may indeed suffer from PFP. Put differently, PFP generated 1,905 additional prescriptions on average within the firms introducing the compensation practice. As the authors note, if we extend the estimates from the Danish data to a much bigger country such as the United States, the adoption of performance-based pay would create an additional half million prescriptions.

In addition, the study suggests that people with a propensity for or with previously existing mental health problems quit the firm following PFP adoption, and are replaced by individuals with lower propensity. This means that turnover is used as a coping mechanism to deal with the stress generated by PFP. It also speaks to the sorting effect of relative pay (that is, employees spontaneously sort in and out of a company depending on performance and associated pay) based on the individual tolerance of the risks associated with such a compensation practice. Interestingly, the effect of PFP on turnover is stronger for women than men, making women’s career trajectories more susceptible to organizational practices and implying the operating of psychological mechanisms. For example, due to societal expectations, men may stay in an organization despite stress or anxiety to avoid being stigmatized and comply with stereotypical work norms.

Finally, the researchers showed that older employees (> 50 years old) report larger increases in mental health medications than their younger colleagues. Older employees might be more reluctant to organizational change and at the same time are often “forced” to stay in the firm due to facing discrimination in recruitment and less job mobility opportunities. Also, workers whose wages decreased as a result of PFP adoption suffer more than their peers, confirming wage reduction as one of the reasons why PFP deteriorates mental health.

Organizational implications

• Organizations should exert caution when designing and introducing performance-based pay as it can lead to employee stress and further develop into serious mental health conditions such as depression and anxiety.

• In a related vein, organizations should consider the costs of PFP when devising compensation systems. Employee poor mental health is linked to lower individual performance and higher absenteeism and presenteeism (i.e., continuing to work when sick), bearing high psychological, financial, and societal costs. Therefore, the possible costs associated with PFP could outweigh the benefits, leading to reduced organizational productivity and higher medical expenses.

• When introducing PFP, support can be carefully planned to help specific groups of employees, such as older people, women, and those with greater mental health vulnerability who may suffer the most from its adoption. Support can be built around reducing the perception of risk and uncertainty that PFP can bring.

• Attention should be devoted to discouraging social comparison and related feelings of inequity and unfairness by, for example, assigning performance-based rewards to teams rather than individuals.

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Reference:

Dahl, M. S., & Pierce, L. (2020). Pay-for-performance and employee mental health: Large sample evidence using employee prescription drug usage. Academy of Management Discoveries, 6, 12-38. https://doi.org/10.5465/amd.2018.0007

As we often hear saying, “we live in the knowledge-based economy”, and indeed one billion workers worldwide can be considered knowledge workers today. Knowledge workers are essentially required to combine their domain-specific expertise (explicit knowledge) and know-how (implicit knowledge) with action and (often) the use of technology when performing their jobs. Comparing this type of jobs (that is, knowledge jobs) with those that were dominant until about 60 years ago, the differences are striking. Especially in terms of job enrichment and autonomy, which make jobs far more interesting. Often, knowledge jobs also entail finding alternative or creative solutions to problems, and in the creative industry knowledge workers are paramount.

Considering the changes in the levels of autonomy, “interestingness” and creativity of many contemporary jobs, one may wonder whether management tools that were invented in the previous century are still valid and effective. In particular, financial incentives are a management tool rooted in the behaviorist tradition. They were originally proposed as “reinforcements” of positive behaviors, implicitly alluding to simple behaviors to replicate. Hence, one may question their effect on creative and more complex behaviors.   

Do incentives help or harm performance in interesting tasks? And in creative ones?

Kim, Gerhart and Fang (2022) conducted a meta-analysis of 69 studies to understand the impact of financial incentives on individual performance in interesting tasks. Specifying that they focused on “interesting tasks” is important because this is the core of a long-standing debate. According to the Self-Determination Theory (look here to know more!), individual motivation can be distinguished in extrinsic (visible when a behavior is enacted to achieve an external reward) and intrinsic (visible when a behavior is enacted for the pleasure of the activity in itself). Some authors have suggested, and found, that offering extrinsic rewards to people that are intrinsically motivated to perform their tasks may be counterproductive. However, the meta-analysis by Kim and colleagues shows that there is a positive impact of incentives on performance in interesting tasks. In fact, such a positive effect is very similar when comparing interesting and uninteresting tasks. Moreover, further insights come from zooming in on the type of performance by distinguishing quantity (e.g., number of tasks completed) and quality (e.g., accuracy of the completed task). With respect to performance quantity, incentives even worked better in interesting rather than in uninteresting tasks. In interesting tasks, the difference in performance between people who receive incentives and those who did not, is large. In uninteresting tasks, the difference between people who receive incentives vs. do not receive them is only medium. On the other hand, with respect to performance quality, incentives’ effect still appears to be more mixed. Overall, and very similarly across interesting and uninteresting tasks, the impact is positive but only a small difference in performance is observed between people with and without incentives. What is more concerning, is the greater variability of these latter findings, which indicate that there are instances in which the presence of incentives deteriorates performance quality. More research is needed to fully understand the conditions in which this occurs.

In another meta-analysis of 60 different studies, Byron and Khazanchi (2012) explored the effect of incentives on creative tasks. These authors included in their analysis quite diverse research, conducted in and outside of the workplace with samples including adults as well as children, which makes the findings generalizable to multiple situations. The results, once again, reveal that rewards are beneficial to creative performance, provided that some specific conditions are met. First, only rewards that are creativity-contingent lead to stronger creative performance. This is because these incentives clarify that creativity is valued and expected. On the opposite, rewards that are performance-contingent or completion-contingent (i.e., associated to the level of performance reached and the completion of a task, respectively) are negatively associated with creative outputs. Second, creativity-contingent rewards are more effective when combined with feedback that helps people understand how to improve their attempts (find out more on how feedback impacts creativity in our Digest 20). Third, creativity-contingent rewards that leave people opportunities to choose (e.g., which reward they want) are even more successful at improving creativity.

Organizational implications

When the goal is to design incentive systems or pay-for-performance plans to reward knowledge workers and especially their performance in interesting and creative tasks, it is important to consider the following:

• Distinguish between quantity and quality of performance and be aware that incentives will be more effective at promoting quantity performance. This means that extrinsic motivation can sum up with intrinsic motivation in interesting tasks and lead to better outcomes.

• Apply financial rewards with care to motivate quality performance, instead, because in this case extrinsic rewards may crowd out intrinsic motivation or even accuracy and attention to detail that are prerequisites for quality performance.

• Offer rewards that are tied to the creative output and not to the level of performance or task completion if the intention is truly to foster more creativity. 

• Always provide feedback along the way, so that people are better enabled to attain their valued rewards (from a motivational standpoint, this means increasing their Expectancy, namely the perception to be able to reach the reward with their behavior).

• Whenever possible, let people choose the type of reward they want from a set of options, which is what many companies have already implemented for benefits under the label “cafeteria-style”.

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References:

Byron, K., & Khazanchi, S. (2012). Rewards and creative performance: a meta-analytic test of theoretically derived hypotheses. Psychological Bulletin, 138(4), 809. https://doi.org/10.1037/a0027652

Kim, J. H., Gerhart, B., & Fang, M. (2022). Do financial incentives help or harm performance in interesting tasks?. Journal of Applied Psychology, 107(1), 153. https://doi.org/10.1037/apl0000851

The Global Business Ethics Survey® released in 2021 and based on data collected worldwide in 2020, revealed interesting but also alarming trends. First, only 14% of individuals believe that they work for organizations with strong ethical culture. Second, even those who work for companies with high ethical standards, have felt increased pressure to compromise those standards (specifically, 29% of employees reported feeling such pressure). Furthermore, nearly 8 in 10 employees have reported the observed misconduct higher up and 61% experienced retaliation for doing so.

These figures paint a worrisome picture, and there is no doubt that organizations need to take actions to improve their ethical culture and promote ethical behaviors. So, organizations (and managers) may be tempted to use rewards to encourage such behaviors. But…

…what’s the effect of monetary incentives on (un)ethical behaviors?

This is the question that Park and colleagues (2022) tried to answer by reviewing the academic research on the effect of incentives on unethical behavior across the management, economics and psychology disciplines.

First, they defined “incentives” any form of return offered to a person for actions and behaviors that they would not have otherwise chosen. While this definition is very large, in practice, research mostly examined the use of monetary compensation offered for exhibiting a certain performance – not only an ethical one. Second, the authors conceptualized unethicality as (a) constituting the violation of group, organizational, or community norms; or (b) involving forms of nontrivial harm (psychological, social, physical or financial) to individuals, groups, or communities; or (c) involving actions that suggest a neglect of widely respected rights, obligations, and virtues.

The studies included in the review are not only experimental studies conducted in labs, but also field studies conducted in real contexts. In these cases, examples of unethical behaviors associated to incentives come from various fields: in the educational sector, the presence of incentives based on students’ outcomes may lead to test score manipulation; in the healthcare, incentives may influence the choice of protocols used in treating patients; in the for-profit sector, incentives may be associated with executives’ account manipulation or selling at an increased cost for the employer in the case of salespersons.

We “spoil” the conclusions of the study by revealing to our readers that ethicality might be negatively impacted by incentives. The most interesting part of the story is why that is the case. Seven theoretical perspectives can be adopted, each supported by empirical evidence.

1. The cost-benefit perspective. Acting unethically is considered the result of cost-benefit analysis. If unethical behavior appears to be bringing more benefits than costs – particularly to advance the person towards achieving the prospected reward, it is more likely to appear. This has been found when anonymity is guaranteed in dice-rolling games, or in call centers, if employees are told that the probability of having their calls monitored is nil. In these cases, then, the cost of cheating is nil too.

2. The crowding out effect. Acting ethically is considered as being intrinsically motivated, based on moral identity. Offering an incentive to act ethically may have the opposite, detrimental, consequence of reducing ethicality rather than increasing it, as if our brain could not accommodate both a moral and a material identity. Numerous experiments conducted both in economics and psychology provide ample supporting evidence for the crowding out effect. One study however found that with people with low moral identity, larger rewards actually increased the likelihood of ethical behavior.

3. The goal effect. This is based on abundant literature on goal setting, which finds that when working in a goal setting condition as opposed to a ‘do your best’ condition, participants are more likely to cross ethical lines, all the more so in the presence of financial incentives. One explanation of the goal effect is ‘resource depletion’, namely a state provoked by the pressure to achieve the goal that depletes individuals’ resources to act morally. Indeed, acting morally requires a substantial amount of energy (and so does the goal). The other explanation is termed ‘outcome bias’, that is the tendency to narrowly focus on the achievement of the outcomes specified by the goal ignoring everything else.

4. The market-pricing mindset effect. This perspective is very close to the cost benefit perspective with one important difference. Here, the idea is that some individuals hold a market-pricing mindset, and so they tend to consider all relationships and interactions under a utilitarian lens. Therefore, they do not specifically engage in a cost-benefit analysis, but they regularly tend to adopt a utility metric. This mindset is not a given trait but can be developed (i.e., increased or decreased). Research found that among individuals who are taught to (or induced to) think that making money is valuable, desirable and should be maximized, the likelihood that they will behave unethically is increased.

5. The symbolic money effect. People can value money not only instrumentally, but also due to its symbolic and emotional meaning (for example, it signifies that one is self-sufficient, independent, powerful, etc.).  Although less supported empirically than other perspectives, this one also predicts that in the presence of incentives people act more unethically because money gives a sense of self-sufficiency that in turn reinforces one’s personal agency and reduces compassion and prosocial behaviors.

6. The inequality effect. Large pay differentials would trigger unethical behaviors via fostering the perception of being “relatively deprived” in those who are the least paid. Abundant evidence has been found, that the larger a potential pay increase or a bonus, the higher the likelihood that employees aiming for it will act unethically.  Such behavior can consist, for instance, in misrepresenting accounts, or engaging in risky behavior. A qualified version of this perspective suggests that the inequality effect is stronger when perceptions of justice are low, which is supported by empirical evidence (see also Digest 37).

7. The group effect. Unethical behavior may be present in the context of group incentives, which is counterintuitive. This happens through two distinct mechanisms. The first mechanism is called the ‘group benefit’ effect or altruism-based unethicality. It was found that in the presence of a collective incentive, the likelihood of behaving unethically for the benefit of not just oneself but one’s work group can be higher than in the presence of an individual incentive. The second mechanism is called the ‘diffusion of responsibility effect’. This occurs when one’s sense of morality is altered by norms of unethical behaviors that can be observed among other team members sharing the same incentive.

The final contribution of this literature review is a dedicated section on field research in sectors where the incentive-ethicality link has been studied most, i.e., in the educational sector, in the health care sector, and in the for-profit sector (C-suites and sales). Typical unethical behavior found in the educational sector in the presence of incentives based on student outcomes, is test score manipulation. Incentives were also found to influence the choice of protocol used in treating patients in hospital with no obvious link to the patient’s need, as well as being more selective regarding the admission of a patient into a care unit. In the for-profit sector, higher incentives, or incentives framed as losses, tend to elicit more unethical behavior from executives, such as account manipulation, or such as selling at an increased cost for the employer in the case of salespersons.

Organizational implications

In light of the evidence presented in this review, organizational decision makers should bear in mind the following ideas.

• First, rewarding ethical behavior is not a good idea, as it weakens the moral foundations of acting ethically, but may be a good idea when recipients’ moral identity is low.

• Second, when in presence of incentives, providing employees with the knowledge that their behavior can be monitored, even if very rarely, is important in order to minimize unethical behavior.

• Third, monitoring ethicality is even more crucial in the presence of group incentives that may create added peer pressure and/or encouragement to act unethically.

• Fourth, very large incentives should be avoided if acting ethically is a central consideration.

• Finally, justice perceptions are key in preventing unethicality at work. For how managers and supervisors can be perceived as fairer in performance evaluations that often underlie incentives, check out Digest 14 and Digest 33.

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Reference: Park, T. Y., Park, S., & Barry, B. (2022). Incentive Effects on Ethics. Academy of Management Annals, 16(1), 297-333. https://doi.org/10.5465/annals.2020.0251  

Compensation systems in organizations play an important role in determining employees’ attitudes and behaviors; hence designing fair systems is like seeking the holy grail for HR professionals. When it comes to pay at work, people engage in evaluations to judge whether their returns (pay, promotions, etc.) are equitable or not. Equity theory – developed by Adams during the 1960-70s – well explains how individuals decide whether compensation is fair (or not) and what they do when they perceive equity (or inequity). In a nutshell, employees assess whether they are compensated fairly enough in return for their inputs, and they also engage in social comparisons by contrasting their inputs and returns with those of their colleagues. If people perceive an inequitable compensation, they will change their behaviors. For example, they may reduce the effort spent on the job and, consequently, job performance; they could engage in shirking behaviors such as lateness and absenteeism; or they could even leave the company.

Organizations do not exist in a void, and the external context contributes to shape a firm’s pay structure. Economic trends such as globalization, trade liberation, high permeability of the organizational internal labor market all point to the importance of considering contextual characteristics when designing compensation systems. In fact, when evaluating the fairness of their returns, employees do not only focus on pay differentials within the organization (that is, internal pay inequity), but they will also compare whether they are treated in the same way as employees doing a similar job in other organizations. The latter comparison refers to external pay inequity, indicating that individuals focus on pay differences across companies in addition to those within their organization. Now, the question is whether external and internal pay (in)equity matter evenly for individual outcomes in the workplace or… does one of the two weigh more in affecting employees’ attitudes and behaviors?

Do internal and external pay (in)equity equally matter for employee outcomes?

Della Torre and colleagues (2015) conducted a study among about 1,500 Italian manufacturing firms to understand how internal and external pay discrepancies influenced a costly organizational outcome, that is organizational-level absenteeism. To measure internal equity, they used the pay differential between occupational groups within firms, that is white- vs blue-collar employees. External inequity was measured through the pay ratio between an organization’s pay levels for blue- and white-collars versus the pay levels of other companies within the same industry.

The researchers found that both internal and external inequity matter for absenteeism at the organizational level but in different ways. External pay ratio reported a negative relationship with absences, meaning that when employees perceived to be paid fairly in comparison to people in similar jobs in other companies they reduced their absence levels. The results about the internal pay ratio showed that the levels of absenteeism were the highest when the pay ratio was in favor of white-collars, while they were the lowest when pay differences benefitted blue-collars. In other words, the two occupational groups reacted differently to perceptions of pay inequity, with only blue-collars withdrawing from their work when feeling unfairly compensated in comparison to their white-collar colleagues. Such differences can be explained by the absence norms that distinct groups develop. These norms, in turn, dictate the group’s absence behaviors.

Based on these results, the researchers went a step further and looked at whether the effect of external and internal pay inequity on absenteeism could depend on the presence of performance-based pay practices (e.g., merit pay, see Digest 38). Once again, the results differ for internal and external inequity. In relation to external pay differentials, absenteeism was found to be at its lowest when the firm relied on pay-per-performance policies. When employees perceive that they are rewarded more than people in other organizations they will strive to be present at work and reciprocate the company’s positive treatment (i.e., high pay) only if the high level of pay is contingent upon their performance. However, when it comes to the internal pay ratio, organizational absenteeism was at its highest when performance-based pay policies were in favor of white-collars (that is, pay incentives targeted white-collars and excluded blue-collars), indicating the importance of applying the same compensation policies across occupational groups.

Organizational implications

To design equitable and fair compensation systems, organizations may want to reflect on the following points:

• Consider the characteristics of the organizational context, including the company’s composition in terms of occupational groups, as this will impact employees’ perceptions of and reactions to the pay structure.

• Designing a compensation system with large pay discrepancies between different occupational groups inside one’s firm will have detrimental effects on organizational outcomes, such as increased absenteeism, by generating perceptions of inequity in the deprived group.

• Understand the larger context and its impact on employees’ perceptions of equity and behaviors. Paying employees more than other companies in the same industry do, can be an effective strategy to reduce absenteeism at the organizational level. However, when doing so, it is important to link the level of pay to employees’ performance using appropriate policies and practices.

• When using performance-based pay practices, ensure that these are consistently applied across the different occupational groups; else, these practices can backfire and damage organizational outputs (i.e., increase absenteeism of the excluded group).

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Reference: Della Torre, E., Pelagatti, M., & Solari, L. (2015). Internal and external equity in compensation systems, organizational absenteeism and the role of explained inequalities. Human Relations, 68(3), 409-440. https://doi.org/10.1177/0018726714528730

Trying to boost employee performance, organizations typically use pay-for-performance (PFP) plans as part of their compensation systems. These plans are payments made to employees that vary based on individual or organizational performance.

Studies have shown that PFP plans have positive effects on employee and organizational performance, by operating via two mechanisms: the incentive mechanism and the sorting mechanism. The incentive mechanism refers to the impact of PFP plans on employee motivation which is heightened and results in better employee performance; while the sorting mechanism impacts the composition of the workforce. PFP plans influence the quality of those who apply for jobs and those who leave the organization (typically, PFP plans would aim to encourage under-performers not to apply or, on the opposite, leave the organization and over-achievers to stay with the company).

PFP plans differ based on the performance metric they consider (i.e., individual, team, or unit performance) and also the type of rewards/compensation they provide – which can span recognition, non-monetary awards, cash awards, permanent pay increase, or long-term incentives. Three of the most common PFP plans are: merit-pay, bonuses, and long-term incentives.

• Merit pay is a permanent pay increase -that is, a pay raise- that is based on individual past performance. Merit pay increases the base pay and is received by the employee regardless of her future performance.

• Bonus pay is a monetary reward given to the employee based on her individual performance but does not increase the base pay. This PFP plan is quite popular among organizations as it is paid once and does not increase the fixed labor costs.

• Long-term incentives are rewards based on individual performance but also linked to a firm’s long-term growth and are paid in cash or stocks. The amount of the award is dependent on organizational performance.

Usually, organizations use multiple PFP plans simultaneously, thus it is important to explore how these plans together impact employee performance.

How does the combination of different pay-for-performance plans impact the performance/turnover of employees?

To address this question, Park and Sturman (2016) collected data from an American company that provides services to organizations operating in the global travel industry. Their sample consisted of 720 employees working with 88 supervisors from 17 locations in the USA. Analyzing the data, Park and Sturman found that, individually, each of the three PFP plans (i.e., merit pay, bonuses, and long-term incentives) increases employees’ future performance (incentive effect) and decreases employees’ turnover (sorting effect).

They also found that in having all three PFP plans simultaneously, merit pay has a positive incentive effect on individual performance. Bonuses also have positive incentive effect on individual performance, but this effect is smaller than the effect of merit pay. In other words, employees are more motivated by merit pay than bonuses when these PFP plans are awarded simultaneously. It was also found that in combining all three, long-term incentives have no effect on employee motivation nor performance in comparison to bonuses and merit pay, which are immediate payments while long-term incentives are not immediately liquid.  

When it comes to turnover, Park and Sturman found that merit pay and long-term incentives decrease the turnover of high performers. Merit pay explicitly appreciates top performers by increasing the base pay and signaling they are valued by the organization. Long-term incentives, due to their non-immediacy, help retaining the high performers in the organization. On the other hand, bonuses, due to their immediacy, even increase employee turnover.

Organizational implications

To organizations that are pondering about the best pay-for-performance plan (or combination thereof), we recommend the following:

• While the tendency is trying to reduce merit raises to reduce fixed costs, be aware that raises have larger effects on employee performance in comparison to both bonuses and long-term incentives. Moreover, merit pay is also the only plan that has both incentive and sorting effects, so it also reduces the turnover of high performers.

• Bonuses would need to be larger to lead to higher employees’ performance; therefore, organizations need to make the cost-benefit decision on whether to have higher one-time costs (bonuses) or fixed labor costs (raises). To complicate the decision even more, in combination with other pay for performance plans, bonuses are shown to increase turnover.

• Long-term incentives, while less effective than other plans to increase motivation and performance, are effective at increasing commitment and reducing turnover. Hence, they may be a valid option to consider when sorting effects are a priority (particularly in the war for talents) and when liquidity issues may prevent large investments in pay raises.

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Reference: Park, S., & Sturman, M. C. (2016). Evaluating form and functionality of pay‐for‐performance plans: The relative incentive and sorting effects of merit pay, bonuses, and long‐term incentives. Human Resource Management, 55(4), 697–719. https://doi.org/10.1002/hrm

Nowadays, unethical behaviors such as corruption and abuse are quite wide-spread and are in the spotlight (check out Our World in Data report). Unethical behaviors in organizations are sensitive issues and range from stealing, lying, bullying to more subtle behaviors such as counterproductive work behaviors which are also important to be monitored (look at HBR and Gallup reports). Counterproductive work behaviors refer to employee intentional behaviors such as ignoring orders or being intentionally careless with organizational resources that harm the organization and other employees in the organization. To reduce unethical behavior in organizations, one needs to explore what causes such behaviors. A trigger is often offered when employees perceive injustice and unfairness in their work environment. Such perceptions of injustice and unfairness can be due to unfair performance appraisals (see Digest 2 on the effect of feedback communication on fairness perceptions) which would make basis for unjust compensation decisions. Compensation systems have more tangible effects and being based on unfair performance appraisal, such systems might be even more powerful in determining unethical behaviors.

How do perceptions of injustice lead to unethical behaviors?

Addressing this question, Jacobs, Belschak, and Den Hartog (2014) collected data from 332 police officers in Germany. They also collected data from each of the police officers’ colleagues who would be best able to evaluate their work behavior as they would accompany the police officer (respondents) on their daily missions. In this study the researchers measured organizational justice perceptions related to the police officers’ last performance appraisal. They looked into different types of justice, namely: distributive, procedural, and interactional justice. Distributive justice is related to which outcomes or resources are distributed among employees. These resources also often include rewards contingent upon performance appraisals. Procedural justice is associated with the processes that lead to outcomes and, hence, how fair are the criteria and procedures used to determine the allocation of rewards (for example, the criteria used to evaluate one’s performance). Interactional justice is related to perceptions of being treated with respect and dignity. For more information on different types of justice, have a look at Digest 2.

Jacobs and colleagues observed that distributive and interactional justice trigger positive emotions in employees which consequently, after a certain threshold, result in their proactive and pro-organizational behaviors. On the other hand, if employees perceive distributive and interactional in-justice in their performance appraisals, they will experience negative emotions and engage in unethical behaviors such as counterproductive behaviors -e.g., exaggerating work results and intentionally working slowly or carelessly- and complaining behaviors -e.g., complaining about trivial matters and exaggerating problems to harm internal morale and external reputation of the organization.

Jacobs and colleagues also found that the extent of procedural and interactional justice in performance appraisal results in employees perceiving greater social support: namely, that their organization takes their values and goals into consideration and their supervisors value their contribution and care about them. The perception of support from the organization makes employees less likely to engage in counterproductive work behaviors and the perception of supervisor support results in lower unethical behaviors (namely counterproductive and complaining behaviors) in employees. By the same coin, we can conclude that procedural and interactional justice, by fostering the perception of greater supervisor support, lead to more ethical behaviors.

Organizational implications

To reduce unethical behaviors of employees by leveraging the opportunities offered by performance management systems we recommend the following:

• Organizations and HR practitioners are advised to create fair and ethical guidelines and policies especially for their performance appraisal and compensation systems to ensure that employees feel supported by their organization.

• Supervisor support, or the lack thereof, is key for ethical and unethical behaviors respectively. Thus, we recommend supervisors to pay attention to how fairly they act in their performance appraisal. In particular, they should be concerned with interactional justice which is more directly under their control than distributive justice (often tied to policies decided higher up in the organization) and show their employees that they care about them and value their contribution. For how managers and supervisors can be perceived as fairer in performance evaluations by employees check out Digest 14 and Digest 33.

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Reference: Jacobs, G., Belschak, F. D., & Den Hartog, D. N. (2014). (Un)Ethical behavior and performance appraisal: The role of affect, support, and organizational justice. Journal of Business Ethics, 121, 63–76. https://doi.org/10.1007/s10551-013-1687-1

This month marks exactly three years since the launch of the Digests in the REALPAL website and I wish to celebrate this milestone by sharing some reflections.

Few months ago, a woman manager in my network, who is very dedicated to her job, gave me spontaneous feedback on the digests. She said that she appreciates very much the blog and found many useful tips in those posts – something she was indeed actively looking for. It turned out that she had asked the HR department of her organization to prepare a short training on how to communicate feedback, but the outcome had not been what she needed or expected. She disclosed she was hoping for actionable ideas as those found in the REALPAL Digests!

I was (and am) so glad to receive such positive feedback that I want to thank her publicly as her comments made my day. They rewarded me personally (and the rest of the team too) for all our work and confirmed it was worth it. Since our chat, I have thought that by proving useful even just to this one person, the Digests had accomplished their goal. But of course, the more people we can support the merrier we are, and so -I thought to myself- why not sharing some ideas on how these digests could be used by different people with multiple or different needs.

First things first: what are the digests? They are blog posts, which we publish monthly, on the broad topic of feedback and performance management. In each of them, we address a specific issue or practice (e.g., the increasing use of feedback apps) and summarize one or more research studies that have collected empirical data and hence offer scientific evidence on that topic. We conclude with our own practical takeaways on how people could really use or apply those insights.

Now, off to my promised “food for thoughts”.

How could you use the Digests?

If you are an Educator/Professor

If you are, like us, a professor, a lecturer, or a trainer, you may use the Digests by embedding them in your class or coursework pack.

1. The digests could be a tool for you to refresh some literature and prepare a lecture

2. The infographics we create for each digest, by highlighting the main findings or features of a study, could be effectively embedded in your slides (I, myself, have tried that and it worked well!)

3. The digests could be assigned as readings to the students before a class discussion/debate

4. They could be referred to as resource material for project works (also used – with satisfaction of both myself and my students of an HRM Master course)

If you are a manager or an employee

If you are a manager regularly giving feedback to your collaborators, or if you are an employee regularly receiving and also giving feedback, you may use the Digests for your self-development.

1. The digests may address questions or doubts you already had from your own experiences. For example: Why is it so hard to give feedback to certain individuals? Is feedback-giving affecting the feedback giver too? How will a creative team react to positive vs. negative feedback? By reading the studies summarized in each digest you will not only find straight answers to those questions, but -most importantly- you will get to know the scientific evidence behind it (i.e., why it seems to work in a certain way and the theoretical reasons behind)

2. The digests may offer you practical tips ready to apply and try out by yourself (e.g., paying attention to whether you use different feedback formulations for men and women, which may make your feedback “gender-biased”)

If you are an HR person or a consultant

If you are an HR professional/executive or a consultant in the broad HRM field, you may use the Digests to design practices and interventions.

1. The digests may be a source of practical indications pertaining to the design of appraisal tools (e.g., how many raters to include in 360° evaluations, how to balance numerical and narrative evaluations)

2. They can also inspire additional reflection and pondering on features that are less commonly considered (e.g., giving team feedback, adjusting the feedback to the type of team or personality of the members)  

3. They could be used in training programs (similarly to what I recommended doing with students)

What is coming next?

May 2022 also marks the formal end date of the project, R.E.A.L. P.A.L., under which the digests were envisioned and created. The research project has kept the team extremely busy with multiple studies, involving the collection of different types of data, in the past three years. While the generous funding from FCT (Portugal) is over, the research itself is not. A long road still awaits us, and we will walk it with the same curiosity and passion that distinguished the first phases of the project ideation and writing. In fact, now it is time to answer our original questions by analyzing our data – and uncover much more than we originally even thought we would focus on.

Just as the research is not “over”, nor are the digests! First, because once engaged in knowledge dissemination, we simply cannot disengage. This has been an inherent goal of the R.E.A.L. P.A.L. project and one that will live beyond it. It is our way of conducting research on the broad topic of performance management and feedback and of contributing to that field – academically and professionally. Second, because our efforts so far have received positive feedback and generated interest in colleagues to collaborate with us.

Hence, the monthly digests will continue, and the team is enlarging! I am delighted to have with us a new contributor – Prof. Alain Klarsfeld, who has been very enthusiastic about the initiative since its early days (check out our new Team page). New energies then, but also new perspectives and new focuses will characterize the next set of digests. The team felt that one element of the performance management process had not yet been addressed in our collection, namely the link of appraisal and feedback with rewards. We will, therefore, channel our efforts in this direction and digest the empirical literature that can offer important inputs on managing rewards – financial and otherwise. Since this “second generation” of digests stems in full continuity with the previous one, we will keep the same structure by summarizing the studies and offering our own reflections on their organizational and managerial implications. Something new has been introduced, however, which is the search tool by category, to be able to locate all blog posts related to any topic of interest. Also, we recommend signing up to the RSS feeds not to miss any posts.

And…stay tuned because much more is being cooked …, while we already think of a “third generation” of digests!

Silvia & the team

A consolidated trend over the past 5+ years has been for many large organizations to greatly rethink, if not dropping altogether, its appraisal system. As Buckingham and Goodall reported in an HBR article already in 2015, Deloitte had abandoned its rating system, and many others, such as Accenture and GAP did the same. The reason was that traditional annual performance reviews did not seem adequate for accompanying the fast pace of business and ensuring individual performance improvement. So, this is no news. What is new, though, is that organizations are now turning to online applications for providing real-time feedback. The advantage of these apps is that they enable timely, frequent and – most important – what we call event-focused feedback (Dello Russo and Miraglia, 2021, EAWOP).

Real-time feedback applications are different from traditional performance management systems (including not only the old-fashioned paper-and-pen systems but also other online, non-application-based systems) in that they are embedded in a mobile device like a phone, which facilitates frequent, timely, ongoing use, and even forms habits in the phone owners. Moreover, it allows for constant updates and information, which could motivate feedback recipient to even adjust their performance in real time.

What are the effects of real-time feedback application on employee performance appraisals?

In this regard, Rivera, Qiu, Kumar, and Petrucci (2021) conducted a study using a real-time feedback application called DevelapMe which was used in five organizations from pharmaceutical, healthcare, interior design, and payment processing industries. The data comprised around 5000 instances of feedback from the application which were collected between February and June 2017 in four organizations and between September and November 2017 in the fifth organization.  

The unit of analysis was the instance of feedback which is the behavior on which one employee rates another employee at a given time. A total of 1019 feedback instances were provided anonymously, while 3956 were given with the full name of the feedback provider. Of those non-anonymous feedback, 806 were provided by subordinates (20%), 2224 by peers (56%), and 926 by managers (24%). In this sample, 115 employees received feedback and 111 employees provided feedback. On average, an employee received 43 and provided 45 instances of feedback.

Rivera and colleagues found that, in the context of real-time feedback application, the ratings employees receive from their managers are lower than the ratings they receive from their peers and subordinates showing that managers are more critical.

Moreover, in real-time feedback, men feedback providers rate women more leniently than men. Women feedback providers, on the other hand, tend to rate women and men similarly, which is also similar to the way men feedback providers rate men feedback recipients. These gender differences could have several explanations. They may reveal, for example, the “positive” sexism of men feedback providers, but it could also happen that it is strategically done: because women are more cooperative and reciprocating in comparison to men, men may rate women higher in the hope of their reciprocation in the future. Moreover, we should not overlook that men’s feedback to women tends to be more positive but more vague, while men’s feedback to men is more critical but more specific which is an important element for development (for more gender-based feedback check out Digest 34).

The results also showed that managers tend to adopt a tit-for-tat strategy while peers do not follow this strategy. Tit-for-tat strategy consists in cooperating in round one and then mimicking the behavior held in round one by the other party in the next round. In the real-time feedback context, this strategy is manifested when an employee gives a higher rating to another employee who rated her high in the previous round and vice versa: a further lower rating to those that originally rated them low. One explanation for managers’ greater use of the tit-for-tat is that they usually have more bargaining power than peers and such strategy would enable them to act harshly to sanction or prevent any deviation from the “cooperative” equilibrium.

In real-time feedback applications, employees tend to rate lower when they are anonymous, and higher when their identity is known. For this reason, anonymous ratings are considered to be less biased.

Rivera and colleagues also found that the scores of recipients who had received low scores initially increase more significantly in comparison to those who had received higher scores initially. This is while traditionally negative feedback was seen as demotivating and influencing future performance negatively. This difference could be due to the fact that real-time feedback is event-based and ensure issues are addressed in a timely manner. It may also be due to the fact that event-based feedback is more specific and helps improve a behavior rather than being perceived as a judgment on the person as a whole (see Digest 3 for more details on the features of high-quality feedback).

Organizational implications

Organizations can be encouraged in the use of application-based performance management systems for the following reasons:

• Real-time feedback is more accurate and less biased by previous scores as they are event-based and more task-focused.

• Instant and continuous feedback provides more information and a clearer picture of employees’ strengths, weaknesses, and performance.

• Real-time feedback helps recipients with initial low scores to increase their scores significantly over time.

• Real-time feedback motivates and helps employees to perform well every day of the year, not just when the annual evaluation is approaching.

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Reference: Rivera, M., Qiu, L., Kumar, S., & Petrucci, T. (2021). Are traditional performance reviews outdated? An empirical analysis on continuous, real-time feedback in the workplace. Information Systems Research, 32(2), 517–540. https://doi.org/10.1287/isre.2020.0979

With women comprising half of the world population, it is surprising -to say the least!- that women are under-represented in senior leadership positions. While developing good leaders is fundamental for the success of organizations in the long-run, and it is indeed the object of significant organizational investments, little attention has been paid to how developmental feedback may help men and women become better leaders (to learn about the effect of developmental feedback on newcomers check out Digest 31). Developmental feedback provided to future senior leaders is meant to open their eyes on the way they should act or how to change their behaviors to progress and succeed. But are these developmental feedback messages different for women in comparison to men? And if so, how different are these feedback messages?

Can it be the case that developmental feedback messages are gender-biased?

To answer this question, Doldor, Wyatt, & Silvester (2019) qualitatively analyzed a dataset which was comprised of 1057 written comments about the development needs of 98 men and 48 women elected leaders for local government in the UK. These comments were provided by their colleagues and officials with the aim of helping these leaders to develop.

Their analysis showed that the feedback comments women received drew their attention to become operational and getting things done; men, on the other hand, were suggested more often than women to be strategic and set the vision. Therefore, women were directed towards developing technical skills which would limit them to becoming technical experts, while men were recommended to develop their visionary skills and focus on strategic agendas.

Moreover, women were told to be more resilient, less sensitive, have a thicker skin, and cope with politics; while men were actually encouraged to leverage and manage politics proactively by building network and exerting their influence behind the scenes.

Men were similarly recommended to display more confidence while women were told to be more confident showcasing the preconceptions of women intrinsically lacking confidence.

Last but not least, Doldor and colleagues found that on average the feedback given to women pointed them toward being interpersonally sensitive and trying to get along with their colleagues; rather, men were advised to claim their space as leaders, be ambitious and agentic in fulfilling their potential. Overall, women’s leadership potential was not recognized to the same extent that men’s potential was recognized, and women were encouraged much less to develop their ambitions in comparison to men, regardless of their performance since men and women who received the feedback had equal performance ratings. 

While being operational, resilient, confident, and getting along with others are important traits for leaders to be successful, one needs to be strategic, visionary, ambitious, agentic, proactively influence others, and display confidence to be able to become a senior leader. Overall, this study showed that the developmental feedback messages provided to women were less likely to help those women with the visionary and the political skills they need for senior leadership roles, ultimately failing to support them for their career progression.

Organizational implications

To be more gender inclusive and less biased in the formulation of developmental feedback offered to leaders, the following suggestions can be helpful to organizations:

• Developmental feedback messages provided to leaders should be monitored and, if needed, recalibrated and enriched to cover the relevant issues for developing necessary skills in senior leaders.

• To avoid gender biases, when offering developmental feedback to women in leadership positions make sure it is actionable and challenging, and includes comments about strategic vision and proactive approach towards political influence. For more gender differences in the feedback context check out Digest 25.  

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Reference: Doldor, E., Wyatt, M., & Silvester, J. (2019). Statesmen or cheerleaders? Using topic modeling to examine gendered messages in narrative developmental feedback for leaders. The Leadership Quarterly, 30(5), 101308. https://doi.org/10.1016/j.leaqua.2019.101308

Justice creates a trusting environment in organizations where employees would engage in positive work behaviors and enhance their performance (for more on justice/fairness check out Digest 2). Yet, creating just work environments is easier said than done and managers are faced with multiple barriers when it comes to enact justice. Two of such barriers are managers’ limited attention and limited information.

Limited attention refers to managers’ oversights, that happen when managers fail to consider justice or its relevance in certain situations - due to time pressure or being too focused on task performance or other priorities. For example, allocating a significant task to a newcomer to test his/her skills would be seen as unfair by other experienced employees while the manager may not realize it. Another example of lack of justice enactment would be a manager who does not adequately recognize the contribution of an employee in a certain task due to time pressure.

Limited information refers to the lack of contextual information about when, how, and to what extent managers need to enact justice. Particularly, these “contextual” information pertain to their collaborators preferences and expectations. Examples include acknowledging an employee’s efforts verbally while the employee expected a more tangible recognition, or assigning a challenging task to an employee to showcase his/her skills while the employee might perceive it as an unfair distribution of workload.

Overcoming these two barriers is key to increase justice enactment in organizations.

How to overcome limited attention and limited information?

Sherf, Gajendran, and Posner (2021) argue that the flow of information between managers and employees can help overcome these two barriers. When managers frequently seek feedback from their employees, they create opportunities for gathering solicited and unsolicited information about violations regarding perceived justice and the employees' work situation. This flow of information would help managers enact justice more effectively.

In this regard, Sherf and colleagues (2021) conducted multiple studies. In their first study, they used archival data on 8706 managers mostly from North America; in their second study, using a cross-sectional survey, they recruited 181 manager-employee dyads from various industries; and in their third study, using a longitudinal design, they recruited 196 managers from the United States. In this last study, after the screening survey and selecting the eligible respondents, they send a survey on personality differences (Time 1), a month later they sent another survey measuring feedback seeking and managers’ self-efficacy (Time 2), and another month later, they measured justice enactment (Time 3).

Based on these studies, Sherf and colleagues (2021) showed that managers’ feedback seeking from their employees has a positive effect on employees’ perception of justice. They also found that managers that have higher self-efficacy -that is, managers who have higher belief in their ability to perform and execute the appropriate behaviors in different situations- engage in more justice enactment when they seek feedback from their employees.

Organizational implications

To ensure a just environment in organizations:

• Companies need to encourage their managers to frequently seek employee feedback concerning their own performance. In addition to increase managers’ justice enactment, feedback seeking also leads to higher employee performance, creativity, and improved relationships.

• Companies can also help managers who are low in self-efficacy to benefit more from feedback seeking by providing them with coaches and mentors helping them interpret employees feedback better.

• While most focus has been on employees’ seeking feedback (have a look at Digest 23), and, to some extent, managers seeking feedback from external sources (check out Digest 24), less attention has been given to managers seeking feedback from their employees with the aim of helping the employees. Therefore, companies should also encourage managers to seek feedback from their employees as well as other sources.

• Managers are invited to consider feedback seeking as a tool that would assist them in paying more attention to issues related to justice and its relevance, as listening more enables better understanding employees' needs, perceptions, and preferences (look at Digest 10 on how to become a better listener).

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Reference: Sherf, E. N., Gajendran, R. S., & Posner, B. Z. (2021). Seeking and finding justice: Why and when managers’ feedback seeking enhances justice enactment. Journal of Organizational Behavior, 42(6), 741–766. https://doi.org/10.1002/job.2481

Feedback is a control mechanism that helps systems or people to gain information about their performance, to help them improve it and avoid unfavorable and harmful consequences. Hence, organizations try to encourage their managers and employees to give and seek feedback (for managers’ feedback seeking behavior see Digest 24).  

People seek feedback or avoid it for different reasons, either to gain useful information, to manage impressions, or to protect their ego. Therefore, there are three motives for feedback-seeking behavior (or lack of it):

• Instrumental motive: This motive suggests that employees want to gain information and get feedback on their performance so that they can adjust their behavior, achieve their performance goals, and adapt themselves to their work environment.

• Image-defense motive: Employees may not seek feedback to safeguard their social image as feedback seeking may signal the seeker’s ignorance and need for self-relevant information which may be perceived as insecurity. This as a result may distort the confident image of the feedback seeker.

• Ego-defense motive: Since performance feedback refers to the self, and it could be positive, reinforcing the good job done, or negative, trying to point out the issues that should be improved, some individuals may try to avoid feedback seeking altogether to protect their ego as negative feedback would hurt them.

These motives are stronger or weaker in individuals based on their individual characteristics (look at Digest 9 for more information). But they could also depend on how people are socialized to the work environment and to their culture more generally.

How do motives impact feedback seeking in different cultures?

To answer this question, Macdonald and colleagues (2013) conducted a study with 72 and 64 individuals who were born and raised in Canada and China respectively. These participants were all full-time workers. In this study, participants were asked questions regarding their motivation for seeking feedback on their performance, then participants were provided with eight unique scenarios, four practice scenarios and four duplicate ones for reliability checks. Each of the situations presented to the respondents had one of the conditions of the following three pieces of information: 1) The feedback provided in the scenario was expected to be a) positive or b) negative; 2) the feedback was to be given by a) the manager or b) the peer; and 3) the feedback was expected to be provided in a) private or b) public. After each scenario, participants were asked about the likelihood of seeking feedback in each of those situations.

Macdonald and colleagues (2013) found that Canadians, being individualist and distinguishing themselves through success and self-esteem, have higher instrumental and ego-defense motives for seeking feedback in comparison to Chinese participants who are collectivists, de-emphasize boasting and value modesty and humility. To maintain their self-esteem, Canadians with higher ego-defense motives prefer positive feedback over negative feedback.

Moreover, they found that Chinese workers have higher image-defense motive for seeking feedback in comparison to Canadian participants. This is due to the high-power distance and that Chinese may consider seeking feedback as inappropriate since it may insinuate a doubt about their ineffectiveness. This also results in Chinese workers to prefer seeking feedback from their peers rather than their managers; and if they seek feedback from their managers, they prefer to do it privately.

Organizational implications

When working with employees from different cultures, the following recommendations may be useful for managers or expatriates:

• Employees from different cultures (collectivistic vs. individualistic) have different motives for seeking or not seeking feedback and when appointed to other countries with different cultures, expatriates/managers need to take such differences into consideration. For more information on effects of cultural differences on feedback check out Digest 26 and Digest 12.

• Employees’ reluctance in seeking feedback in collectivistic cultures should not be mistaken for their lack of initiative; it is simply a cultural trait. Having lower instrumental and ego-defense, and higher image-defense motives, they will be less active in seeking feedback as they might find it rude to their manager. To promote feedback seeking behavior check out Digest 23.

• Managers need to show sensitivity toward the needs of employees’ culture. This would create a trusting and positive relationship between managers and these employees.

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Reference: Macdonald, H. A., Sulsky, L. M., Spence, J. R., & Brown, D. J. (2013). Cultural differences in the motivation to seek performance feedback: A comparative policy-capturing study. Human Performance, 26, 211–235. https://doi.org/10.1080/08959285.2013.795572

Organizations invest considerable resources to attract and recruit employees – which makes essential that organizations succeed also at retaining their newcomers and gaining positive outcomes through their behaviors and performances. On the one hand, there are formal initiatives -such as onboarding and mentoring programs- often put in places to make the transition smooth; on the other hand, the interactions newcomers have with their managers and colleagues, which are typically less formalized, have also a great impact on their organizational socialization and adaptation to the new environment. In a study by Vandenberghe and colleagues (2021), it was shown that newcomers tend to proactively seek feedback from their managers and coworkers upon their arrival. Yet, as time passes by, their feedback seeking behavior decreases which results in a decline in the information they could obtain about organizational norms and values, what is expected from them, in terms of role performance expectations. The reduction in obtaining such information deteriorates newcomers’ ability to socially adjust their behavior and integrate with others in the organization. Consequently, these result in newcomers’ weaker organizational commitment -not feeling connected nor attached to the organization-, which eventually leads to their turnover. Observing that feedback seeking behavior declines in newcomers and that it results in negative consequences, one could rightly ask what possible ways there are to prevent such negative outcomes, especially prevent their turnover; and on the opposite, how to engage newcomers so that they perform according to or exceeding expectations and engage in helping behaviors.

How to engage newcomers in helping behaviors and task performance?

As mentioned earlier, newcomers are affected by their social interactions. In this regard, Li and colleagues (2011) conducted a study collecting data from 115 newcomers and their managers working in two high-tech joint ventures in the field of IT and manufacturing in China, and found that the developmental feedback newcomers receive from their managers or coworkers help them engage in helping behaviors. Particularly, developmental feedback from both managers and coworkers is needed to help newcomers increase their task performance. What is meant by developmental feedback is the helpful and useful information given to employees/newcomers which enables them to learn, develop, and improve their job performance (check out Digest 3 for more details on high-quality feedback).

Moreover, Li and colleagues (2011) found that those newcomers who have proactive personality, in other words those who naturally take personal initiatives, will engage more in helping behaviors when they receive feedback from their coworkers. On the contrary, those who are not proactive would engage more in helping behaviors when their managers provide them with developmental feedback.

Organizational implications

The following suggestions might help organizations enhance newcomers’ performance and boost helping behaviors in them:

• For those newcomers who do not engage in feedback seeking or those whose feedback seeking behavior decline over time (find out more on individual characteristics and feedback seeking behavior in Digest 9), managers’ and coworkers’ developmental feedback could be a good substitute to enhance newcomers’ performance and prevent the decline in their organizational commitment and increase in turnover. Therefore, managers and coworkers should be encouraged to provide developmental feedback to newcomers.

• When providing developmental feedback, managers need to consider the personality of newcomers. If managers want to reinforce a collaborative culture and increase helping behaviors, they need to especially provide developmental feedback to those newcomers who are less proactive; and encourage coworkers to provide feedback to those newcomers who are more proactive.

• Organizations need to involve coworkers in formal socialization and mentoring initiatives designed for newcomers, as this maximizes the possibility of strengthening also informal interactions together with the opportunities to provide feedback (for more benefits of coworkers’ feedback have a look at Digest 19).

• Considering that feedback seeking tends to decline over time, it is of the utmost importance to give high-quality developmental feedback to newcomers: this would reinforce the culture of continuous feedback and therefore prevent them from stopping to seek feedback (see Digest 23 on how and why feedback quality matters for feedback seeking).

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References:  

Li, N., Harris, T. B., Boswell, W. R., & Xie, Z. (2011). The role of organizational insiders’ developmental feedback and proactive personality on newcomers’ performance: An interactionist perspective. Journal of Applied Psychology, 96(6), 1317–1327. https://doi.org/10.1037/a0024029

Vandenberghe, C., Landry, G., Bentein, K., Anseel, F., Mignonac, K., & Roussel, P. (2021). A dynamic model of the effects of feedback-seeking behavior and organizational commitment on newcomer turnover. Journal of Management, 47(2), 519–544. https://doi.org/10.1177/0149206319850621

When addressing the difficulties associated with negative feedback, the focus is typically on the employees or, in general, the recipients of negative feedback: how such feedback affects them (see Digest 2 and Digest 20), and how managers can provide better negative feedback (see Digest 29). The effects of delivering negative feedback on those who provide it has been completely overlooked.

The provision of negative feedback, from the managers’ perspective, may have benefits and costs. The benefits comprise demonstrating competence, exercising power and control, and addressing a performance issue; the costs, on the other hand, involve damaging the relationship and hurting an employee’s feelings. Whether managers see negative feedback as beneficial or costly to them depends on their personal characteristics, especially how empathic they are.

How does empathy influence the reactions to providing negative feedback?

In addressing this question, Simon and her colleagues (2021), conducted multiple studies. First, they surveyed 53 managers in the U.S.A., twice a day for 10 consecutive workdays about their feedback provision and how they felt afterwards. Second, they conducted an experimental study with 221 managers who had to read a report by an imaginary employee and give a corrective performance feedback to him/her. Subsequently, the managers were told the employee’s emotional reaction to their feedback, which was controlled by the researchers. Half of the participants were told that their employee was emotionally disturbed by the feedback, and half were told that the employee stayed calm after receiving the feedback and accepted it. Finally, the managers had to work on some tasks to see how effectively they performed.

Complementing these two studies, a third one asked managers to describe an incident where they gave negative feedback to their employee (in real life) and then answer few questions and perform simple tasks. Based on these three studies, Simon and colleagues found that after providing negative feedback empathic managers feel less attentive (alert, engaged and concentrated) and more distressed (on edge, uneasy, or tense) which results in them becoming less effective in their leadership. In contrast, managers with lower empathy report feeling more attentive and less distressed, which resulted in them being more effective in their leadership. The reason is that empathy makes people feel close to their interlocutors and put themselves in the shoes of the feedback recipient, which ultimately affects your emotions and level of energy.

Organizational implications

To avoid negative effects of negative feedback on feedback providers, the following recommendations may help:

• While the provision of negative feedback has benefits, especially for the recipients, organizations should be aware of its probable psychological costs on the providers that might impede leaders’ effectiveness.

• Organizations should give leaders sufficient time to recover after providing negative feedback to ensure the process does not hinder their effectiveness in other responsibilities they have.

• Organizations need to offer trainings to leaders on how to provide high-quality negative feedback and how to become more resistant towards the psychological costs such process has.

• Organizations need to identify empathic leaders and encourage them to take part in recovery activities such as going for a walk and having lunch with colleagues, after the provision of negative feedback to boost their spirit.

• Empathic leaders may be better off providing negative feedback later in the day, after they are done with their other tasks so that it does not affect their effectiveness during a working day: However, receiving negative feedback later in the day may have also a detrimental effect on the recipient and so the quality of the negative feedback is, once again, essential. Leaders with lower empathy may, on the opposite, be better off at providing negative feedback earlier in the day.

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Reference:  Simon, L. S., Rosen, C. C., Gajendran, R. S., Ozgen, S., & Corwin, E. S. (2021). Pain or gain? Understanding how trait empathy impacts leader effectiveness following the provision of negative feedback. Journal of Applied Psychology, advance online publication. https://doi.org/10.1037/apl0000882

Anyone who has ever been in the position of giving feedback to another person, either at the workplace or in private spheres of life, would agree that it is a very challenging task. Especially criticizing someone’s actions or performance is never easy, and yet sometimes it is necessary – for example when managers have to communicate to their employees that their performance is far from meeting expectations. To lift themselves from such uncomfortable situations, managers often end up sugarcoating their negative feedback. This means that the feedback may not be accurately communicated to the employees, jeopardizing its effectiveness.

Sometimes, the reason for “inaccurate” communication of negative feedback is intentional: managers might intentionally inflate their feedback by referring to the employee’s low performance in a more positive way than it should be, to protect themselves from employee retaliation, to protect the employees from emotional harm (check out Digest 20), or to avoid negative outcomes that may follow negative feedback (check out Digest 2). But feedback inflation may also happen unintentionally – which makes it more subtle to avoid.

Why unintentional feedback inflations occur when delivering negative feedback and how to remedy?

The topic of unintentional feedback inflations has been the subject of six studies conducted by Schaerer and colleagues (2018). In the first study, data were collected from pairs of employees and their managers in a multinational organization in the educational sector, and the authors showed that managers incurred the “transparency illusion”. This is what we would call a mismatch between a manager’s anticipation of an employee’s understanding of the performance evaluation and the employee’s actual understanding of it. With this study and the subsequent one, based on role plays with over 200 students, Schaerer and colleagues also found that this transparency illusion was more frequent when managers had to deliver negative feedback in comparison to positive feedback. In further support of the transparency illusion, a third study with professionals enrolled in an MBA program showed that an external observer present to the delivery of feedback had an understanding of the performance evaluation closer to the understanding of the employees rather than the managers’.

In another set of three experiments Schaerer and his colleagues aimed to show that increasing managers’ motivation to provide accurate feedback, helps remedy the transparency illusion. In the first experiment, participants were asked to give a written feedback to their employees in a way that the recipients could “guess” the evaluation score given to them by the manager. In this experiment, some managers were warned that the evaluation might not be evident to the employees and that employees might understand the feedback in a different way. Based on this experiment, simply reminding managers about the need for accuracy helped reduce the transparency gap making the evaluation scores reported by managers and employees on average closer to one another. In a second experiment, it was shown that if managers received a message from an employee requesting accurate feedback, then the transparency gap would again be reduced, as managers’ and employees’ understanding of the evaluation would be more similar. In the third experiment, managers who were told that they would receive a monetary incentive for accurate feedback incurred less in the transparency illusion.

Overall, these studies showed that such unintentional transparency gap exists, especially in the case of delivering negative feedback, and that it is due to how the managers craft their message more than the way employees receive it. On a positive note, offering managers the opportunity to reflect on the existence of possible discrepancies reduced the transparency gap, as did the attempts at increasing either their intrinsic or extrinsic motivation to provide employees with accurate feedback.

Organizational implications

In order to reduce unintentional feedback inflation, organizations can follow these suggestions:

• Informing managers that the message they try to convey in their feedback to employees might not be as evident to the employees.

• Providing managers with constant reminders and continuous training on biases they might have in delivering feedback to prevent them from reverting back to bad habits.

• Having a formal process of upward communication allowing the employees to express their expectations for accurate feedback prior to the session.

• Developing a culture in which employees and managers can communicate openly.

• Linking monetary or non-monetary incentives of managers to increase accurate feedback delivery and reduce the unintentional feedback inflation.

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Reference:  Schaerer, M., Kern, M., Berger, G., Medvec, V., & Swaab, R. I. (2018). The illusion of transparency in performance appraisals: When and why accuracy motivation explains unintentional feedback inflation. Organizational Behavior and Human Decision Processes, 144, 171–186. https://doi.org/10.1016/j.obhdp.2017.09.002

Succession planning and the development of future leaders is one of the top concerns of organizations, as found by a Deloitte survey (see it at this link). About 38% of organizations referred this as one of their three most pressing needs together with globally competing for talents and retaining them. In terms of succession planning, organizations normally try to identify their talents early on, spotting those who have potential for leadership. To this aim, they use various evaluations so that they can further invest on their talents through targeted and often exclusive training and development opportunities and prepare them for future leadership roles. The talent evaluations –back in the days also known as potential assessment- normally consist of appraising a certain number of candidates and selecting few from those, since the number of leadership roles are limited – even more in contemporary workplaces, which are becoming flatter and flatter. Consequently, the majority of employees will, in fact, be excluded from leadership succession programs after the evaluation phase and this may have the paradoxical effect of demotivating them in comparison to the few chosen ones.

What are the effects of feedback on the lack of leadership potential?

Steffens and colleagues (2018) conducted two studies on this topic. In the first study, 256 participants were recruited via an online platform and asked to imagine working in a workplace where the position of team leader was to be filled; in this fictitious scenario, everyone was told to apply, and all applicants received positive feedback about their current performance. These participants were then randomly assigned to one of three experimental conditions: 1) one group received feedback saying they had low leadership potential, 2) another group received feedback saying they had high leadership potential; and 3) the control group received no information on their leadership potential. The analyses showed that those who were in the first condition reported afterwards lower leadership ambition and lower organizational commitment in comparison to the other two groups.

In the second study, 264 undergraduate students participated in a computerized experiment with multiple stages. At every stage, each participant was informed about their own performance and not about the others’. At stage 1, participants were given numerous arithmetic operations to solve in two minutes. At stage 2, they had to repeat the same task but in random groups of 3 participants and they were compensated for their performance. At stage 3, they had to do a word completion task individually. At stage 4, which required participants to complete once more a task similar to the previous ones, the leadership potential was manipulated. Participants were informed that two of them would be chosen as leaders and the chosen ones had to distribute a bonus between team members. Accordingly, high vs. low leadership potential feedback was randomly given to each member. Two members in each team received the “high leadership potential” label and two the “low leadership potential” label. In the control group, no leadership potential feedback were given and members were told that leadership appointment would be done randomly by the computer. The analyses of this study showed that those who received low leadership potential feedback perceived lower procedural fairness and had lower performance in comparison to those who received high leadership potential feedback.

The two studies together show that providing feedback on leadership potential impacts employees’ ambition to become leaders, their commitment and performance and that this differently occurs for those that receive positive feedback (i.e., high potential) and those that receive negative feedback (i.e., low potential).

Organizational implications

These findings have multiple implications for organizations and professionals who are responsible for talent management programs: 

• Since programs such as talent management may result in non-selected individuals to become less motivated and enthusiastic for what they do, organizations should avoid invasive succession processes by focusing less on competitive distinctiveness between individuals. In fact, we already know that using social comparison when evaluating performance can be a boomerang (see Digest 14).

• Conversely, and to avoid the double-edged effects of “elitist” talent management programs, organizations may focus on more inclusive approaches, which emphasize the organization’s commitment to nourish (and not to sideline) individuals' capacity to grow into leaders. See on this additional literature. 

• The findings also suggest that succession planning efforts may not be fully independent from efforts in retention. Hence, organizations could offer individuals multiple career trajectories with leadership roles (requiring leadership potential assessment) being only one of them. In this way, those individuals excluded from leadership development initiatives, may continue within different but just as structured developmental and career paths.

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Reference: Steffens, N. K., Fonseca, M. A., Ryan, M. K., Rink, F. A., Stoker, J. I., et al. 2018. How feedback about leadership potential impacts ambition, organizational commitment, and performance. The Leadership Quarterly, 29(6): 637–647. https://doi.org/10.1016/j.leaqua.2018.06.001