Horizontal pay dispersion as social context for predicting employee performance outcomes associated with diagnostic‐ versus criterion‐referenced performance feedback

Abstract Despite its recognised centrality as an organisational tool, there are decades of mixed findings relating to the employee performance benefits associated with different forms of performance feedback. The ambiguity present in the literature has been attributed to multiple factors, including feedback purpose and the context within which feedback occurs. Integrating these broad themes, we develop a model expanding the breadth of relevant social context variables to include horizontal pay dispersion. Building from tournament theory, in a field experiment of 267 employees across 22 units, we find improved performance from diagnostic feedback delivered under increasing pay dispersion; however, substantively different patterns emerge for criterion‐referenced feedback. The current findings have implications for both performance feedback research and tournament theory.