Which Peer Group to Choose? The Effects of Relative Performance Information on Employee Self-Selection and Performance

In this paper, we report the results of two controlled experiments on relative performance information (RPI). Our main focus lies on investi- gating the behavioral effects of RPI when employees have the autonomy to sort into a specific peer group. In such a decentralized organizational structure, we are interested in employees’ decision to self-select into a high- performing rather than a low-performing peer group and their subsequent performances. As a baseline, study 1 focuses on a centralized organiza- tional structure where employees are exogenously assigned to one of the two peer groups. Our results indicate that RPI provision crucially interacts with the peer groups’ reference points. Specifically, RPI boosts performance when employees are assigned to the low-performing group. However, our results reveal a discouragement or choking-under-pressure effect of RPI when assigned to the high-performing group. In study 2, we show that these risks do not play a crucial role under a decentralized organizational structure where employees can self-select. In fact, we demonstrate that RPI especially induces employees with a relatively low initial performance to sort into the high-performing group. We further find that the average performance of those who chose the high-performing group when RPI is provided exceeds the performance of those who chose the same group without RPI. This suggests that opting for the high-performing group when RPI is provided might serve as a self-set target