Feedback, Self-Esteem, and Performance in Organizations

We examine whether private feedback about relative performance can mitigate moral hazard in competitive environments by modifying the agents' self-esteem. In our experimental setting, people work harder and expect to rank better when told that they may learn their ranking, relative to cases when feedback will not be provided. Individuals who ranked better than expected decrease output but expect a better rank in the future, whereas those who ranked worse than expected increase output but lower their future rank expectations. Feedback helps create a ratcheting effect in productivity, mainly because of the fight for dominance at the top of the rank hierarchy. Our findings suggest that organizations can improve employee productivity by changing the likelihood of feedback, the reference group used to calculate relative performance, and the informativeness of the feedback message. <i>This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.</i>