The Effects of Transparency and Group Incentives on Managers’ Strategic Promotion Behavior

We investigate managers’ propensity to engage in strategic promotion behavior. Strategic promotion behavior occurs when managers pursue personal economic interests when contributing to employee promotion decisions, such that the probability that relatively lower performing employees are selected for a promotion is increased. We develop theory about how two important organizational characteristics—transparency about individual performance levels and the presence of group incentives—jointly affect managers’ tendency to strategically influence promotion decisions. Using a stylized lab experiment, we find that transparency about individual performance levels decreases strategic promotion behavior when group incentives are absent but not when group incentives are present. We discuss how our findings contribute to our understanding of management accounting and control systems.