Performance Incentives and Performance Evaluations in a Pressurized System: The Impact of a Superior Organization's Inclusion of the Performance Honor List on the Performance of Subordinate Organizations

Performance incentives are management mechanisms designed to integrate motivational elements to enhance performance, with the primary goal of improving performance. While the direct impact of performance incentives on the performance of target organizations has been extensively studied, the hierarchical external effects—specifically how performance incentives at one level influence performance at other levels—remain underexplored.

This study examines the issuance of performance honor lists as a form of performance incentives characterized by a strong honor-based motivational element. Being included on the list provides a positive incentive. Drawing on pressurized system theory, this research focuses on the performance management system in S Provincial Taxation Administration. To address issues of sample nesting and endogeneity, the study employs both a Hierarchical Linear Model(HLM) and Fuzzy Regression Discontinuity(FRD). The analysis investigates the impact of a superior organization's inclusion on the performance honor list on the improvement of performance among its direct subordinate organizations, thereby exploring the cross-level effects of performance incentives.

The results reveal that the superior organization's appearance on the performance honor list negatively affects performance improvements of subordinate organizations, with the most significant impact observed on external subordinate organizations. The findings are robust, having passed stringent tests of reliability and robustness. From the perspective of pressurized system theory, this can be explained by the fact that superior organizations, motivated by performance incentives, exert performance pressures on subordinate organizations, particularly on external subordinate organizations. In contrast, the pressures exerted on internal subordinate organizations are relatively limited. Further, through a case study framed within a “three powers” theoretical framework, this research finds that top-down performance evaluations, consistent with a pressurized system, enable superior organizations to exert performance pressures on internal subordinate organizations.

The main contributions of this study are as follows. First, it enhances the theoretical framework for understanding the cross-level effects of performance incentives. While the direct effects of performance incentives have garnered significant academic attention, this study shifts the focus to the external effects of performance honor lists, shedding light on the often-overlooked cross-level impacts of performance incentives. Second, the study suggests practical implications for performance incentives in hierarchical organizations. Given that hierarchical structures are the most common organizational form in public administration, this research provides valuable insights into the application of performance incentives within such settings.