Relative performance evaluation (RPE) is a widely studied topic in the theoretical and analytical accounting and economics literatures. The empirical literature also addresses this topic, with its main focus on executive compensation. This paper aims to extend the findings of the literature by assessing the extent to which RPE is used at lower organisational levels.
This study uses a purpose-developed survey to gather data from 325 business unit managers.
This study finds that RPE is used to a great extent in the performance evaluation of business unit managers. Additionally, the findings suggest that RPE use increases the informativeness of the performance evaluation through noise reduction. Noise in the performance evaluation is described in literature as the primary antecedent of RPE, but prior research provides only weak empirical support for this claim.
This study hypothesises a causal relation between RPE and noise in performance evaluation. However, the use of cross-sectional survey data only allows testing associations, not causations.
The originality and value of the paper lie in the focus on the business unit level and the use of survey data, which are almost completely absent in this area of research that almost exclusively uses archival data at the executive level.
This paper is based on the author’s PhD-dissertation. Therefore, the author gratefully acknowledges the guidance and feedback of this thesis advisor Roland Speklé and Nyenrode Business Universiteit for funding my research. Also, the author wants to thank his thesis committee Henri Dekker, Tom Groot, Henk Langendijk, Lineke Sneller, Paula van Veen-Dirks and Sally Widener for their feedback on the dissertation. The author also thanks Bob Scapens, Ivo de Loo and the anonymous reviewer for their constructive comments.
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