pdf - Nyenrode Business Universiteit
pdf - Nyenrode Business Universiteit
pdf - Nyenrode Business Universiteit
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4 CHAPTER 1. GENERAL INTRODUCTION<br />
or prior year (Murphy 2001:245). For example, next year’s revenue target can be based<br />
on last year’s sales. Another example is internal negotiations between higher and middle<br />
management about the target’s difficulty. Second, targets can be externally determined,<br />
referring to standards that are less easily affected by actions from employees who are involved<br />
in realizing the target. Externally determined targets include: timeless performance<br />
standards, companywide cost of capital, and the use of a peer group benchmark.<br />
My research project focuses on one method of ‘external’ target determination, namely Relative<br />
Performance Evaluation (or RPE). RPE is a means to determine the performance<br />
standard by using a peer group benchmark: the performance of the employee (or: manager)<br />
is compared to the performance of a reference group. This reference group typically<br />
consists of individuals facing similar tasks and circumstances. For example, a manager’s<br />
performance can be compared to the five best performing managers within the organization<br />
or to a group of important competitors operating on the same market. The idea behind<br />
this comparison is that the performance of the reference group is informative for the performance<br />
potential of the employee. The performance potential of the employee functions<br />
as an (explicit or implicit) performance target against which his actual performance is<br />
evaluated.<br />
This thesis’ overall research topic is Relative Performance Evaluation. I study the use<br />
and effectiveness of RPE at the organizational level of middle managers. Based on prior<br />
literature, I argue that RPE has a sound theoretical basis, but lacks overall conclusive<br />
empirical support. My research topic is further motivated in the remainder of this introductory<br />
chapter. First, I review the literature on RPE in section 1.2. Then, in section 1.3,<br />
I introduce the research questions of this project and discuss how these research questions<br />
contribute to the literature. Finally, section 1.4 describes the structure of the entire thesis.<br />
1.2 Literature Review<br />
This section addresses the current theoretical and empirical literature on RPE. In section<br />
1.2.1, I discuss two theoretical perspectives on RPE that explain why organizations might<br />
use it. Subsequently, in subsection 1.2.2, I present what the literature suggests about<br />
RPE’s empirical validity and to what extent we find empirical support for the presented<br />
theoretical explanations.<br />
1.2.1 Theoretical Explanations for RPE Use<br />
The extant RPE literature argues that the adoption of RPE practices can be a useful<br />
endeavour for several reasons. Prior studies argue for the use and effectiveness of RPE