In Search of Informed Discretion (Revisited): Are Managers Concerned about Appearing Selfish?

Abstract

To improve the quality of performance evaluation and compensation decisions, managers can undertake costly searches for additional information about employees’ individual contributions to performance. Prior accounting research documents that managers are willing to undertake these costly information searches because they have social preferences (i.e., distributional fairness and reciprocity). However, our experimental results show that managers are significantly less willing to undertake costly information searches when the situation allows them to make fewer negative inferences when acting selfishly. Our findings are consistent with predictions rooted in behavioral economics and social psychology that even self-interested people exhibit prosocial behavior in some situations because they have concerns about appearing selfish toward themselves and others. We conclude that creating working conditions that increase managers’ concerns about their self-image may prompt them to make informed performance evaluation and compensation decisions.