Firms often evaluate subordinate performance relative to a difficult but attainable goal set at the beginning of the evaluation period. For many, a mechanism exists by which these goals may be adjusted downward at the end of the period to account for an uncontrollable negative event. We examine, experimentally, how the knowledge that a downward ex post discretionary goal adjustment is possible affects subordinates' expectancy of reward and performance in periods where a negative uncontrollable event occurs, and whether high identity, defined as high perceived social connectedness between the superior and subordinate, moderates this effect. We find that high superior-subordinate identity can offset the otherwise negative impact of the potential for downward ex post discretionary goal adjustment on subordinates' expectancy of reward and performance. Thus, creating an organizational culture that promotes identity between superiors and subordinates can complement incentive-based controls in motivating subordinate performance.
JEL Classifications: C91; J33; M41; M52.
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