We explore the psychological mechanisms activated by centrality bias based on a hypothetical work situation, in which a superior determines a bonus for five subordinates to compensate their work effort.Footnote 3 While an objective measure of work effort is available for bonus assessment, the superior may discretionarily adjust the financial rewards. If the superior makes use of his discretion, a centrality bias emerges in our setting. We are interested in how these subjective adjustments affect the subordinates’ willingness to exert work effort in the future period. In this context, the following lines of reasoning rely on two main ideas: First, we assume that the behavioural implications of centrality bias may depend on whether a subordinate has performed below or above the average. Second, we expect that the behavioural response also depends on whether a subordinate has not only information about his own reward, but also about the rewards of his peers (“peer information”). Based on insights from the social psychology literature, we thus discuss in the following the mediating role of different psychological mechanisms and the moderating role of peer information.
The mediating role of controlled motivation
Unlike traditional economic theory, which assumes that individuals are solely extrinsically motivated, self-determination theory provides a typology of different motivation types. A core idea of self-determination theory is the distinction between controlled and autonomous motivation (Gagné and Deci 2005). Both types of motivation are expected to increase the willingness to exert work effort (Kunz 2015). Controlled motivation is, in line with the assumptions of economic theory (Bonner and Sprinkle 2002; Eisenhardt 1989), regulated by external mechanisms, such as monetary rewards (Kunz 2015; Zapata-Phelan 2009). Correspondingly, we assume that an individual’s controlled motivation is likely to be higher when performance-contingent monetary rewards are offered as compared to a situation in which no rewards are provided (Bonner and Sprinkle 2002; Kunz and Pfaff 2002). The motivational effect of monetary rewards is likely to be highest when there is a direct relationship between an individual’s effort and the evaluation outcome. Centrality bias, however, mitigates this relationship (Prendergast 1999). Due to deflated performance evaluations, above-average performers (below-average performers) receive a lower (higher) reward than they would receive based on their effort. Moreover, an increase in effort leads to a disproportionally low increase in monetary rewards (Berger et al. 2013; Bol 2011). Against this background, inducing more effort does not “pay off” adequately. If an individual is subject to centrality bias, we thus expect that the impact of monetary rewards on controlled motivation decreases, given that a marginal decline in effort is likely to imply a disproportionally low decline in rewards (Golman and Bhatia 2012). Therefore, we expect that above-average as well as below-average performers who are subject to centrality bias have less controlled motivation to exert work effort. Correspondingly, we formulate the following hypothesis (H):Footnote 4
H1: Centrality bias is negatively related to controlled motivation.
The mediating role of autonomous motivation
According to self-determination theory, an individual’s actions are not entirely driven by external mechanisms such as monetary rewards. Instead, it suggests that individuals are also autonomously motivated to engage in a task because of enjoyment or identification with the value and meaning that an activity implies (Gagné et al. 2015).Footnote 5 Self-determination theory states that autonomous motivation is influenced by the satisfaction of three basic psychological needs—autonomy, competence and relatedness (Deci and Ryan 2000; Van den Broeck et al. 2010). The need for autonomy reflects an individual’s need to feel self-determined and to have possibilities of choice (Deci and Ryan 2000; Gagné and Deci 2005). The need for competence refers to the experience of success in performing tasks and attaining intended outcomes (Deci et al. 2001). The need for relatedness captures the need to feel connected to others (Deci and Ryan 2000).
Self-determination theory argues that autonomous motivation can be influenced via contextual factors that address these psychological needs. According to Gagné and Forest (2008), compensation systems represent one of these contextual factors. In particular, the provision of rewards may derogate the feeling of autonomy as they put individuals under pressure to achieve a particular target and make them feel restricted in their decision-making about which actions need to be performed (Deci and Ryan 2000; Kunz and Linder 2012). At the same time, such rewards positively impact the feeling of competence as they imply feedback on an individual’s task performance and goal attainment (Deci et al. 2001; Gagné and Forest 2008).
We argue that centrality bias may influence the satisfaction of these needs and thus expect autonomous motivation to mediate the relationship between centrality bias and the willingness to exert work effort. Previous research suggests that positive feedback is able to enhance the feeling of competence (Deci and Ryan 2000). In presence of a centrality bias, below-average performers receive an inflated reward. The corresponding overvaluation of their work effort may be perceived as a recognition, signalling success in performing the evaluated task and thus contributing to the feeling of competence. In contrast, above-average performers receive a deflated reward. This “undervaluation” may be perceived as negative feedback, suggesting that a task is not successfully performed. Therefore, centrality bias is likely to decrease the feeling of competence for above-average performers.
With regard to autonomy, we argue that the clouding of the link between an individual’s effort and the resulting reward may be perceived as a restriction of autonomy. If individuals strive for a particular outcome, they can be less sure on whether their choices of action yield the intended outcome, given that the performance evaluation is less sensitive to their actual work. The mitigation of the linkage between effort and reward may therefore diminish the feeling of having possibilities of choice. We predict that this adverse effect of centrality bias applies to above-average as well as below-average performers likewise.
Concerning the feeling of relatedness, the literature suggests that it is satisfied, for instance, when superiors appear caring (Deci and Ryan 2000).Footnote 6 Against this background, below-average performers may interpret their disproportionally high reward as “distal support” (Deci and Ryan 2000, p. 235) for their efforts that may contribute to the feeling of a close connection with the superior. In contrast, above-average performers may perceive the disproportionally low reward as a signal of personal distance and lack of sufficient acknowledgement. Therefore, centrality bias may mitigate the feeling of relatedness on part of above-average performers. Taken together, we expect that centrality bias decreases the satisfaction of all three psychological needs for above-average performers, leading to the following hypothesis:
H2: Centrality bias is negatively related to autonomous motivation of above-average performers.
For below-average performers, we argue that the feeling of autonomy is likely to decrease, whereas the feelings of competence and relatedness may increase. Depending on how these effects outweigh, there might be a positive or negative relationship or no association at all. Given that the presence and the sign of the relationship are unclear ex ante, we pose the following research question (RQ):
RQ1: How is centrality bias related to autonomous motivation of below-average performers?
The mediating role of procedural fairness perceptions
Previous research suggests that the perceived fairness of performance evaluation is another psychological mechanism that influences individual behaviour as it affects work-related attitudes and outcomes (Burney et al. 2009; Lau and Tan 2006). Empirical evidence indicates that employees are more committed to work and perform better in their tasks if they perceive performance evaluations as fair (Colquitt et al. 2001). Correspondingly, we predict a positive relationship between the perceived fairness of performance evaluation and the willingness to exert work effort. With regard to fairness perceptions, the management accounting literature distinguishes two dimensions of fairness: distributive fairness—which refers to the perception of the distribution of outcomes among employees (Burney et al. 2009)—and procedural fairness—which reflects the perceived fairness of procedures that are used in the context of performance evaluation (Burney et al. 2009; Voußem et al. 2016). Given that our paper refers to bias as part of the performance evaluation process, we focus on the procedural fairness of the performance evaluations (Hartmann and Slapničar 2012b).
In a recent paper, Voußem et al. (2016) analyse the relationship between subjective performance measures and fairness perceptions. They detect an inverted U-shaped relationship implying that subjectivity in performance evaluations increases the perceived fairness if the weight placed on the subjective measures is low. If a higher weight is placed on subjective performance measures, however, subjectivity decreases fairness perceptions. These findings support their line of reasoning that subjective performance measurement implies costs and benefits. They argue that, as the emphasis on subjectivity increases, the marginal benefits are likely to decrease, whereas the marginal costs increase. Voußem et al. (2016) consider biased evaluations as part of the costs of subjective performance evaluations. However, the relationship between centrality bias and procedural fairness perceptions has not yet been investigated explicitly.
Our prediction for the relationship between centrality bias and procedural fairness perceptions draws on referent cognitions theory which argues that individuals rely on reference comparisons in assessing fairness (Cropanzano and Folger 1989; Goldman 2003). More precisely, this theory suggests that individuals reflect on performance evaluation outcomes by generating mental simulations and comparing the actual outcome with a potential outcome that relies on a procedure, which is considered to be valid (McFarlin and Sweeney 1992; van den Bos and van Prooijen 2001). If the potential outcome is more favourable and the procedure used to determine the actual outcome appears less valid, individuals are expected to feel treated unfairly. We suggest that such comparisons appear particularly likely in situations in which the superior has the discretion to adjust an objective measure. In this setting, we expect that the potential outcome based on the objective measure without adjustments is likely to serve as a reference. In presence of a centrality bias, above-average performers receive a reward that falls short of the unbiased evaluation. Therefore, we expect that above-average performers consider the process underlying the biased outcome unfair and penalize it with lower effort.
H3: Centrality bias is negatively related to procedural fairness perceptions of above-average performers.
For below-average performers, the actual outcome is more favourable than the potential one according to the objective performance measure, suggesting that the superior applies a benevolent appraisal procedure. At the same time, the procedure for determining the reward is not discernible for the subordinate and thus may be perceived as less valid. In particular, below-average performers cannot rule out that the procedure will put them at a disadvantage in the future, even though they currently benefit from it. Due to this ambiguity inherent in the relationship between centrality bias and procedural fairness perceptions for below-average performers, there might be a positive or negative relationship or no association at all. For this reason, we pose the following research question:
RQ2: How is centrality bias related to procedural fairness perceptions of below-average performers?
The aforementioned lines of reasoning suggest a direct relationship between procedural fairness perceptions and the willingness to exert work effort. However, the prior literature also provides arguments and corresponding evidence for an indirect effect: Procedural fairness perceptions may be positively related to autonomous motivation (Hartmann and Slapničar 2012a; Zapata-Phelan 2009). In particular, an evaluation process that is perceived as fair (unfair) may enhance (mitigate) the feeling of relatedness with the superior. This argument is in line with the reasoning by Cugueró-Escofet and Rosanas (2013) that procedural fairness perceptions may lead to a sense of belonging and thus may improve the feeling of relatedness with the superior. In addition, procedural fairness perceptions may be stronger when rewards reflect organizational objectives more clearly, implying lower ambiguity for an individuals’ work role (Hartmann and Slapnicar 2012a, b). Such perceptions may reinforce the feeling of competence and thus imply a positive relationship between procedural fairness perceptions and autonomous motivation. Taken together, we suggest that fairness perceptions may affect the willingness to exert work effort directly as well as indirectly via autonomous motivation. In the findings section, our data analysis will consider both options.
The moderating role of peer information
Prior research does not take into consideration whether the individuals who are subject to a centrality bias are aware of the degree to which their peers are affected (Bol 2011; Engellandt and Riphahn 2011; Kampkötter and Sliwka 2017). However, theoretical insights suggest that peer information may have an impact on the association of centrality bias with autonomous motivation as well as with procedural fairness perceptions. For this reason, we discuss the moderating role of peer information in the following.
Social comparison theory suggests that individuals compare themselves with peers when the outcome of performance evaluations is available—even when they are not competing for a tangible outcome (Luft 2016; Tafkov 2013). Empirical evidence suggests that the disclosure of rankings motivates individuals to exert more work effort and to improve their performance relative to others (Hannan et al. 2013; Newman and Tafkov 2014). However, in the case of centrality bias, we argue that the disclosure of peer information is likely to decrease the impact of an employee’s autonomous motivation to exert work effort. In presence of centrality bias, the provision of peer information reveals a systematic measurement error if information on actual work effort is available. Correspondingly, below-average performers are likely to recognize that their inflated reward is not driven by a specific acknowledgement or a close relationship with their superior.Footnote 7 Moreover, the overvaluation of their performance as well as the undervaluation of above-average performers may imply that the relatedness among subordinates decreases. For this reason, we expect that the enhancement of the feelings of competence and relatedness due to inflated ratings—as suggested in Sect. 2.3—is mitigated.
Similarly, above-average performers get to know that their peers with a below-average performance have received inflated rewards, while they themselves were subject to a deflated evaluation (Hartmann and Slapničar 2012b). This awareness is likely to decrease the feeling of relatedness among the subordinates. Moreover, the feeling of autonomy might suffer further if above-average performers find that an increase in effort is even likely to increase the discrepancy between the actual effort and their evaluation. Against this background, we state the following hypothesis:
H4: Peer information reinforces the effect of centrality bias on autonomous motivation.
The provision of peer information may also impact the relationship between centrality bias and procedural fairness perceptions. While the referent cognitions theory introduced in Sect. 2.4 predicts that fairness perceptions are based on a comparison of the actual performance evaluation outcome and a potential one, equity theory assumes that fairness perceptions are contingent on a comparison of an individual’s own “return on effort” and the returns received by his peers (Adams 1965). According to equity theory, individuals expect to receive an “appropriate rate of return”, which is the ratio of the benefits an individual receives (i.e., outcomes) and the contributions an individual makes (i.e., input) (Greenberg et al. 2007). Equity theory further assumes that an individual compares his own rate of return with those of his peers. In this context, equity is obtained if the rates of return (i.e., the output-input ratios) are equal among the focal individual and his peers (Adams 1965). This equity considerably shapes the fairness perception of an evaluation process.
Centrality bias leads to inequity, given that the undervaluation of above-average performers and the overvaluation of below-average performers imply different rates of returns. Therefore, we assume that above-average performers who have access to peer information will consider their reward unfair. Due to the perceived unfairness, an undervalued individual is expected to restore equity by decreasing his input (Carrell and Dittrich 1978; Franco-Santos et al. 2012). Thus, we expect that the negative relationship between centrality bias and procedural fairness perceptions becomes stronger. In a similar vein, we expect that below-average performers consider the inequity resulting from centrality bias unfair as well if they are inequity averse, even though they are currently beneficiaries of this bias. Formally stated, these expectations lead to the following hypothesis:
H5: Peer information reinforces the effect of centrality bias on procedural fairness perceptions.
Figure 1 summarizes our hypotheses and research questions. For above-average performers, we predict that controlled and autonomous motivation as well as procedural fairness perceptions negatively mediate the relationship between centrality bias and the willingness to exert work effort. Therefore, we expect a negative overall effect of centrality bias on the willingness to exert work effort. For below-average performers, the prediction of an overall effect is less straightforward as the partial effects of controlled and autonomous motivation as well as procedural fairness perceptions appear ambiguous. Therefore, it is unclear ex ante whether the overall effect is a positive or negative association between centrality bias and the willingness to exert work effort or whether there is no association at all.