Performance Feedback and Moral Hazard in Firms: An Identity Approach

The paper proposes a social identity approach to performance feedback in firms, where agents value the feedback they receive as a means to help reinforce identity-related performance prescriptions. The theory explains the performance-enhancing effect of feedback that is frequently reported in the literature and helps motivate cases of low work engagement in firms. The paper demonstrates that both identity-consistent and identity-inconsistent feedback can lower the cost of incentive pay to the firm. Copyright (C) 2015 John Wiley & Sons, Ltd.