"It's often assumed that employees who are benchmarked against each other work harder, to either hang onto a high ranking or raise a low ranking. However, Iwan Barankay, a management professor at Wharton, calls that assumption into question in a new study titled, "Rankings and Social Tournaments: Evidence from a Field Experiment."
"Many managers think that giving workers feedback about their performance relative to their peers inspires them to become more competitive -- to work harder to catch up, or excel even more. But in fact, the opposite happens," says Barankay, whose previous research and teaching has focused on personnel and labor economics. "Workers can become complacent and de-motivated. People who rank highly think, 'I am already number one, so why try harder?' And people who are far behind can become depressed about their work and give up."
Barankay's interest in rankings as a motivational tool intensified during the aftermath of the 2008 financial crisis, which "showed us that offering employees financial incentives based on their performance can have unintended consequences," he notes, referring to the sky-high bonuses earned on Wall Street in the run-up to the downturn.
"The practical question I wanted to answer is: What should employers do to make their employees work harder when financial incentives [aren't effective] anymore? It is often thought that people care about their status compared to others -- that people derive some happiness or dissatisfaction from knowing they're better or worse than their reference group," Barankay states. "Of course, rank should matter if money is at stake. But I looked at rank as its own reward. I wanted to find out whether workers truly want to know how they rank against their peers and ... if they knew how they ranked, did it cause them to adjust their effort?"
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