Tournament strategies: Collusion or competition?
As many as one-third of US corporations make use of tournament incentive schemes, where compensation is linked to employees’ performance and ranking. But how does the degree of mutual monitoring— the ability of employees to observe each other’s productive activities—affect effort? In a study on mutual monitoring and rank-order tournaments, Lynn Hannan (Tulane); Kristy Towry, Goizueta Term Chair and associate professor of accounting; and Yue (May) Zhang (Northeastern) conduct two experiments to determine whether employees are more likely to collude, resulting in lower effort, or to compete, resulting in higher effort, when they are able to monitor each other during a tournament. They find that mutual monitoring can actually work in either direction, and that it depends on the workplace culture. For example, when management practices are perceived to be unfair, this creates a general inclination for workers to collude against management. In this case, mutual monitoring will amplify the collusion, resulting in lower effort. Likewise, when the workplace culture encourages competition, mutual monitoring contribute to higher effort.