Essec Business School

With ESSEC Knowledge Editor-in-chief

Amazon made headlines on September 16th, when it announced that it wants employees back in the office five days a week as of January 2025 (1). A few days earlier, PricewaterhouseCoopers (PwC) in the United Kingdom, in turn, released to the press that it will start tracking where its employees work, so as to enforce adherence to its new back-to-office policy (2). Whereas these moves certainly make headlines, may help fill empty office buildings and support local restaurants in the business districts, what are the effects of “back-to-office” on employee behavior?

Bringing employees back five days a week to the office may affect what they can observe of their colleagues - in particular in the case of open office spaces. So, how does the type of information you see about your colleagues impact your behavior? Does seeing how hard someone works motivate you to redouble your efforts? Or does being impressed by a colleague’s output drive you to want others to think you’re getting the same results - even if that’s not strictly true?

ESSEC professor Stefan Linder and Sabra Khajehnejad (a former PhD student at ESSEC, now an assistant professor at KU Leuven) explored the effects of this type of peer monitoring in a paper published in Management Accounting Research (3). They found that the type and combination of information about one’s peers that one is exposed to impacts the extent to which one manipulates performance measures - showing the importance of getting the design of peer monitoring systems and management control systems right. 

The researchers looked at the impact of making two types of information accessible to peers: effort and performance. Effort refers to one’s input into their work, and performance is the output. We don’t always have access to both types of information about our colleagues - we might share an office and see that one colleague spends a lot of time on their phone, but not realize that they’re making only little sales in the process. In another scenario, as a remote worker you may have little insight into how much work your colleagues are putting in - but there could be an internal tracking system that shows you how much they’re producing, for example, the sales revenues generated. Thus, observability of effort information to peers is not necessarily the same as that of performance information (4). Dr. Khajehnejad and Dr. Linder were curious about if effort and performance had a similar effect on how a person manipulates performance measures, and looked at perceived effort and perceived performance - since our behavior depends on how we perceive our environment, and not necessarily on the environment’s actual characteristics.

Why these two? If you’re able to observe the effort your colleagues are putting in, you’re also likely able to observe them manipulating their performance results - making them less likely to do so, since they could get caught. This increases the “social costs” of performance manipulation: reputational damage, appearing dishonest, or even disciplinary measures (5). 

Performance observability is a tricky one: it can trigger competitive behavior (6; 7). This could put psychological pressure on employees to perform (e.g., 8; 9), in order to feel accepted at work. But it might not lead to better performance, for example, higher sales revenues generated. Rather it could lead to people wanting to seem like their performance levels are high, and manipulating performance measures as a result (10; 11). 

Observing effort + observing performance = a winning combination?

So should employers implement only effort observability, if performance observability carries the risk of counterproductive behavior? Not so fast. It can turn into a winning combination. If your colleague knows you can see the approximate level of work they’re putting in, they might think twice before making their performance seem better than it really is. The opposite could also be true: if your colleague feels like you can only see their output, and not all they’re putting into it, they may think you can’t properly gauge their performance, and feel more at ease to manipulate their reporting. In this way, making sure that both effort and performance are observable to colleagues could help employers make the most of peer monitoring - and help their employees stay on the right track.

How it’s done

To analyze this, the research team conducted two surveys with mid- and lower-level managers working at for-profit organizations in the United Kingdom (with 219 and 268 participants), who were asked about their workplace behavior and their workplace conditions. In Study 1, they discovered that when peers could observe each others’ performance, they were more likely to engage in manipulating their performance measures. This effect was lessened if peers were also able to see their efforts. They extended their findings in Study 2, by also exploring a firm’s ethical climate (like colleagues’ behavior) to see how this impacted peer monitoring and performance manipulation. Unsurprisingly, an ethical workplace climate makes people less likely to manipulate their results.

This means that the two types of peer monitoring information are complementary, and by using both, there is a decrease in the manipulation of performance measures. People also feel more pressure when their performance is more observable by their peers, which boosts the use of manipulation - but if their peers are able to observe their effort levels, this relationship is weakened. This may be because access to both types of information allows colleagues to get a sense of what someone’s “true performance” would be. 

Dr. Linder notes, “Our findings suggest that performance observability, or the extent to which your peers can evaluate your performance, is a double-edged sword. On one hand, it might reduce the temptation to manipulate performance measures - but on the other hand, it could increase the pressure to manipulate. By introducing effort observability into the mix, the negative effects can be mitigated.” 

In past literature, researchers either didn’t take both types of information into account, or didn’t distinguish between them in their analyses - by looking at the impact of both individually and together, the researchers show their complementary nature. 

Takeaways 

• Management control systems can be costly and complicated to use: these findings suggest that peer monitoring done right can be an effective way to curtail the manipulation of performance measures. 

• If companies are considering peer monitoring as a form of management control, they need to ensure that both effort and performance are observable, to reduce the temptation and pressure to massage results.

• Creating only performance transparency among colleagues, in contrast, encourages performance measure manipulation.  

• It’s also important to model good behavior and encourage an ethical work climate, for instance by being strict about enforcing policies on ethics.

Employees manipulating performance measures can have dire consequences for firms - from false resource allocation decisions over biased promotion decisions to legal issues. Whereas rendering employees’ performance visible to their colleagues inside the organization is often advocated on the basis of fostering competition and therefore performance, performance observability alone risks raising the extent to which employees pad their performance metrics. Transparency of results achieved needs to go hand-in-hand with transparency about the effort level to prevent such dysfunctional behavior. 

Seen in this light, back-to-office policies may seem to be a smart move. Yet, not all offices were created equal. Some indeed offer good effort observability by peers; others don’t. For example, open office designs promise to facilitate such effort transparency to one’s peers. Without such effort observability, however, back-to-office may do little to reduce performance measure manipulation. Then again, open office designs aren’t without their problems (e.g., 12; 13) and redesigning offices for an open office design comes at a cost, too. Thus, answering the question as to what the effects of a back-to-office move is and whether the net effects are positive, isn’t as easy as it may seem.     

References

1. Wall Street Journal, September 16 2024. https://www.wsj.com/business/amazon-tells-workers-to-return-to-office-five-days-a-week-42a32ec8 Retrieved on October 3 2024. 

2. PwC UK September 5 2024. https://www.pwc.co.uk/press-room/press-releases/corporate-news/pwc-uk-shifts-hybrid-working-balance-towards-more-in-person-work.html Retrieved on October 3 2024. 

3. Khajehnejad, S., & Linder, S. (2022). Why the type of information observable to peers matters: Peer monitoring and performance measure manipulation. Management Accounting Research, 57, 100815.  

4. Arnold, M.C., Hannan, R.L., & Tafkov, I.D. (2020). Mutual monitoring and team member communication in teams. The Accounting Review, 95, 1–21.

5. Maas, V.S., & Van Rinsum, M. (2013). How control system design influences performance misreporting. Journal of Accounting Research, 51, 1159–1186.

6. Hales, J., Hobson, J. L., & Resutek, R. (2012). The dark side of socially mediated rewards: how narcissism and social status affect managerial reporting. Available at SSRN 2021889.

7. Luft, J., (2016). Cooperation and competition among employees: experimental evidence on the role of management control systems. Management Accounting Research, 31, 75–85.

8. Apesteguia, J., & Palacios-Huerta, I. ( 2010). Psychological pressure in competitive environments: evidence from a randomized natural experiment. American Economic Review, 100, 2548–2564.

9. Bellemare, C., Lepage, P., & Shearer, B. (2010). Peer pressure, incentives, and gender: an experimental analysis of motivation in the workplace. Labour Economics, 17, 276–283.

10. Baker,  ̈ A., & Mechtel, M. (2019). The impact of peer presence on cheating. Economic Inquiry, 57, 792–812.

11. Mitchell, M.S., Baer, M.D., Ambrose, M.L., Folger, R., & Palmer, N.F. (2018). Cheating under pressure: a self-protection model of workplace cheating behavior. Journal of Applied Psychology, 103, 54.

12. Bernstein, Ethan, and Ben Waber. "The Truth About Open Offices: There Are Reasons Why They Don't Produce the Desired Interactions." Harvard Business Review 97, no. 6 (November–December 2019): 82–91.

13. Nappi, I, & Le Luyer, D (2021). L’avenir du bureau. L'Économie politique, 2021/4 N° 92. pp. 54-61.