Iwan Barankay, a management professor at Wharton, has conducted a new study titled, "Rankings and Social Tournaments: Evidence from a Field Experiment."
In this research, Barankay finds that ranking workers against their peers may not have the beneficial effects that we expect. In fact, it may be incredibly de-motivating. Here is his argument:
"Many managers think that giving workers feedback about their performance relative to their peers inspires them to become more competitive -- to work harder to catch up, or excel even more. But in fact, the opposite happens. Workers can become complacent and de-motivated. People who rank highly think, 'I am already number one, so why try harder?' And people who are far behind can become depressed about their work and give up."
Granted, this study cannot be used to generalize across all organizational settings, and note that it involves rankings that are not attached to bonus compensation. It represents one study in a particular context. However, it does raise some key questions that managers must consider when they chose to compare employee performance against peers.