The Effect of Target Transparency on Managers’ Target Setting Decisions

Abstract

This study investigates via an experiment the effects of target transparency on managers’ target setting decisions. Specifically, we investigate whether target transparency, which reflects employees’ knowledge about each other’s targets, affects managers’ target setting decisions and whether this effect depends on the need for help and cooperation among employees. Consistent with our predictions, we find that target transparency and need for help and cooperation interact to influence manager’s target setting decisions. Specifically, target transparency reduces target divergence (i.e., the difference between individual employee targets), and this reduction is greater when the need for help and cooperation is high than when it is low. Additional analyses provide support for our underlying theory by revealing that managers strategically set targets in an attempt to motivate both effort at the individual level and help and cooperation among employees when such are needed.