Influence-activities-and-Favoritism-in-Subjective-

InfluenceactivitiesandFavoritisminSubjectivePerformanceEvaluation:EvidencefromChineseState-OwnedEnterprisesFeiDu,GuliangTang,S.MarkYoungTAR,2012XinyiZhangResearchquestion•Thisstudyempiricallyassessesthetwo-wayrelationshipinaSubjectivePerformanceEvaluation(SPE)processbydetermining(1)howsubordinatesattempttoinfluencetheirevaluations(bottom-up)and(2)howsuperiorsengageinfavoritismwithparticularsubordinates(top-down)•(3)identifythefactorsthatcontributetotheeffectivenessofinfluenceactivitiesandfavoritismMotivationSubjectivePerformanceEvaluation(SPE):superiortoincludeinformationrelevanttosubordinate’sworkperformancethatisnotincorporatedinobjectiveperformancemeasures.Two-sideeffectsofSPE:•Increasessubordinatepaysatisfaction,salesproductivity,andtrustbetweensuperiorsandsubordinates;•Increasesthelikelihoodofinfluenceactivities,sinceitprovidesmoreopportunitiesforsubordinatestoaffectsuperiorevaluationdecisionsandforsuperiorstomakediscretionaryjudgmentsbyplayingfavoritesEmpiricalstudiesinthisareahaveemphasizedthedecision-influencingbehaviorofsubordinates’activities,whilefocusinglessontheroleoffavoritismonthepartofthesuperiors.Setting•Chinesegovernment’sevaluationsof63state-ownedenterprises(SOEs—thesubordinates)bytheState-OwnedAssetsSupervisionandAdministrationCommissionoftheStateCouncilofChina(SASAC—thesuperior)•SOEsareresponsibleforachievingmultipleobjectives,includingcreatingjobs,advancingtechnologies,defendingnationalsecurity.Someofevaluationmeasuresmaybecontradictorywithoneanotherandmaybedifficulttoquantify.SubjectivePerformanceEvaluationisamechanismusedbytheChinesegovernmentandindividualpoliticianstofocusSOEsonthegoalsandobjectivesimportanttothegovernmentandtoindividualpoliticians.InstitutionalbackgroundFiveStagesoftheSASAC’sPerformanceEvaluationProcessStage1:OperationalTargetSetting•Targetsettingisabottom-upprocessinwhichtheSOEsproposeannualoperationaltargets,andtheSASACeitherapprovesoradjuststhosetargets.Stage2:OperationalResultsVerification•BeforetheendofAprileachyear,CFOsoftheSOEsprepareannualperformancereports,whichincludeabudgetvarianceanalysisandanoperationalperformancesummarybasedonauditedannualfinancialstatementsforthepreviousyear.InstitutionalbackgroundFiveStagesoftheSASAC’sPerformanceEvaluationProcessStage3:RawScoreCalculation•ThecomprehensivescoreforeachSOE’sannualPerformanceEvaluationisthesumofthepointsawardedfortargetachievementoneachmeasure,multipliedbythedegreeofoperationaldifficultygiventhatanSOEmeetsallperformancetargets.•Thedegreeofoperationaldifficultyisasubjectivelydeterminedparameterbasedonassets,revenue,totalprofit,returnonequity,numberofemployees,andratioofretiredemployeestototalemployees.Thisparametervariesacrossyearsfordifferentfirms.InstitutionalbackgroundInstitutionalbackgroundFiveStagesoftheSASAC’sPerformanceEvaluationProcessStage4:ExPostDiscretionaryAdjustment•TheSASACindicatesthattheydeductpunishmentpointsfromrawscoresifenterpriseshaveseveresafetyincidentsorhavebeeninvolvedinfinancialfraudorotherscandals.Enterprisesthathaveacquiredfinanciallydistressedenterprisesoutofpoliticalconcernsreceivebonuspoints(SASAC2008).•TheSASACmakesexpostdiscretionaryadjustmentstoSOEPerformanceEvaluationscoresonacase-by-casebasis.InstitutionalbackgroundFiveStagesoftheSASAC’sPerformanceEvaluationProcessStage5:RatingsAssignment•Basedonthefinalscores,SASACdirectorsdeterminecutoffscoreswithwhichtoassigneachSOEtooneoffiveclasses:A,B,C,D,andE.Ascoreof‘‘C’’oraboveisconsideredacceptableandSOEexecutivesinD-andE-rankedfirmsmaybeaskedtostepdownfromtheircurrentpositionsbySASACofficials.•SOEexecutivesaremotivatedtoinfluencetheperceptionsofgovernmentsuperiorsandengageinprivatecommunicationwithgovernmentsuperiorsbecauseevaluationratingsaffecttheirperformance-basedbonusesandtheircareeradvancement.InstitutionalbackgroundTheoreticalframework&HypothesisInfluenceActivitiesandTacticsUsedbySOEstoInfluencetheSASAC•TwotypesofinfluencetacticswhencommunicatingwithSASACofficials:(1)persuasion.•“A2percentRenminbiappreciationcanimmediatelycauseexchangelossesof40millionU.S.dollarsinourcompany…Wedecidedtoholdaseminar;weinvitedallcommercialtradecompaniesinBeijingtodiscusshowRenminbiappreciationwouldinfluenceexchangelossesin2005,andofcourse,weinvitedofficialsfromtheSASACtoattendourseminar.Usingthisstrategy,wewereabletoconveyourmessageclearlytotheSASACandsuccessfullyconvincethemtoupwardlyadjustourprofitnumberby31millionU.S.dollarsinthatevaluationperiod.”Theoreticalframework&HypothesisInfluenceActivitiesandTacticsUsedbySOEstoInfluencetheSASAC•TwotypesofinfluencetacticswhencommunicatingwithSASACofficials:(2)consultation.•“ItwouldbewaytoolateifwewaiteduntiloperationalresultsaresubmittedtotheSASACtostartcommunicatingwiththeSASAC.WehavetostrategicallysettargetstobetterfulfillourpromisetotheSASACasspecifiedinourperformanceresponsibilitycontract…WecallSASACofficialswhoareassignedtocalculatethescoreforourfirmonceaweekduringtheevaluationperiod.”Theoreticalframework&HypothesisFactorsaffecttheSOEinfluenceactivities:Politicalconnection•Morefamiliarwit