Christian Brück, Thorsten Knauer, Nicole Nikiforow, Anja Schwering: Determinants of the ratchet effect: evidence from retail banking


Target ratcheting involves revising targets based on current performance data. This can lead to dysfunctional behavior such as the ratchet effect, the phenomenon of employees strategically withholding effort in anticipation of future upward revisions of their targets. Although extant research comprehensively studies the existence of the ratchet effect, it has focused on potential determinants of the ratchet effect only recently. We extend this stream of research and investigate determinants that could enhance or mitigate the ratchet effect. Analysis of a unique dataset from a survey among bank employees supports the notion that more risk-averse employees exhibit a greater tendency for the ratchet effect. We also predict and find that target participation and career ambitions are negatively associated with the ratchet effect. Moreover, a short-term employment horizon can also contribute to an alleviated ratchet effect, but this depends on the employee's age. Collectively, the findings suggest that firms should be aware that the ratchet effect depends on individual and organizational characteristics.