Managers’ strategic use of discretion over relative performance information provision and implications for team-members’ effort

The purpose of this paper is to investigate how team-managers use discretion over the provision of feedback about team-members’ relative contributions, and team-members’ response to managers’ use of this discretion. We predict and find (via an experiment) that managers strategically share such information, providing feedback to low-performing team-members and withholding feedback from high-performing team-members. Further, we find that this strategic information sharing enhances collective team effort, as it motivates low-performing teammembers to increase effort while avoiding demotivating high-performing team-members. Our study addresses a significant gap in the management accounting literature, which pays little attention to this type of discretion despite its fundamental nature within firms’ performance measurement and evaluation systems. Our study is also important to practitioners as our results highlight managers’ propensity to use endowed discretion to ultimately control employees’ information environment, which may or may not be desirable under all circumstances.