Employee-Level Real Activities Management, Employee Performance, and Managerial Target Setting
Abstract
This study investigates how real activities management (RAM) by employees to meet internal targets set by managers affects their performance, and how managers’ awareness of employees’ opportunity to engage in RAM moderates this effect. Using two experiments, we predict and find that when managers are unaware of employees’ RAM opportunity, employees who face miscalibrated targets use RAM to restore their own incentives to work hard, resulting in increased employee performance. Counter to conventional wisdom, we also predict and find that making managers aware of employees’ RAM opportunity hurts employee performance. Such managers overestimate employees’ RAM and adjust targets aggressively such that they become more difficult to achieve, leading to lower employee motivation and less trusting employee-manager relations. Overall, our findings show that the opportunity to engage in RAM can have the indirect benefits of motivating higher employee performance, but increasing managers’ awareness of this has negative performance and relational effects. Data Availability: The data and research instrument are available from the authors upon request.
- DOI
- 10.2308/tar-2024-0166
- Pages
- 1-22
- Language
- en
- Sources
- crossref