Performance target setting and agents' winning strategies : evidence from JD.com = 绩效目标考核与代理人的达标策略 : 来自某互联网企业JD的证据

Abstract

Employees are pivotal architects in the construction of corporate value, serving as the essential energy that fuels a company's growth and innovation. Addressing how to inspire corporate employees to diligently exert effort, harness their innovative potential, and alleviate the principal-agent dilemma that exists between organizations and their workforce has persistently engaged the attention of both the practical and theoretical spheres. Based on incentive contracts, companies establish specific performance targets setting that plays a positive role in stimulating the effort level of agents, achieving higher organizational output, and alleviating the principal-agent problem. However, in a multi-task environment, setting performance targets for certain tasks will inevitably harm the performance of other tasks due to insufficient resources, including finance resources, human resources and energy capacity. In addition, agents may adopt some short-term or alternative action strategies (such as shifting the resources, reallocating the team members, or even data manipulation) in the process of trying to achieve performance targets, which can directly or indirectly make adverse effects on the long-term goals that the principal cares about by the design intentions. In this study, we aim to explore how the performance target setting influence agents' strategic choices and performance. In this context, our research delves into the micro-level data concerning performance target setting and target-incentive system from JD.com, a prominent local Chinese internet corporation, spanning from the financial year 2021 to 2022. This thesis specifically studies the following issues: (1) Do agents engage in performance manipulation on a time dimension when they know in advance that the performance target setting will be applied? For example, do they lower performance before the target setting begins in order to improve short-term performance through the advance commitment of resources or the reservation of resources in advance? (2) In the case of performance target setting divided into three specific levels, do agents strive to achieve the targets when they are close to meeting the targets, or selectively give up when there is no hope of achieving the targets? (3) Do agents with different personal characters (gender, age, period of employment, etc), show systematic differences in their responses to performance target setting? This study is based on two periods of sales data from the convenience store business segment of JD.com, implementing a short-term target performance and incentive plan to motivate provincial/regional managers to improve key sales performance indicators of the different brands from all categories selling on this platform. The assessment is carried out in two phases at the provincial/regional level, with selected brands as the subjects of the target setting during the assessment period. The gross merchandise volume and the number of active users over a selected period are set as target indicators and assessed for completion levels. Incentives are given according to the number of brands that achieve the dual growth target within each province, which is divided into different levels to motivate the agents to continuously try to achieve a higher level of target. This study mainly analyzes the second phase of the assessment implementation, studying the incentive effect of such performance target setting. We use a difference-in-differences method to study the impact of the introduction of performance target setting and incentives on enterprise performance. Our results demonstrate that performance target setting has a positive incentive effect on agents. The data further reveal that agents are inclined to engage in strategic behaviors aimed at manipulating their performance outcomes over time. This temporal manipulation often involves a deliberate effort to adjust their productivity or output in anticipation of assessment periods, potentially to maximize their performance scores. Agents with unique characteristics respond differently to the target setting and incentives. The progressive nature of performance target levels significantly influences the incentive effects. However, they may give up when the performance target is too hard to achieve. Although the data and observation is from the local private owned enterprise, the finds are appliable for national owned enterprise, foreign owned enterprise also, since the organizational behavior and managerial practice are similar in the business world. Also since the performance target setting motivation design is based on centralized corporate operation model from headquarter to different regions, the conclusion from the study can be applied to both retailer companies and brand manufacture companies.