Performance Feedback and Moral Hazard in Firms: An Identity Approach

The paper proposes a social identity approach to performance feedback in firms, where agents value the feedback they receive as a means to help reinforce identity‐related performance prescriptions. The theory explains the performance‐enhancing effect of feedback that is frequently reported in the literature and helps motivate cases of low work engagement in firms. The paper demonstrates that both identity‐consistent and identity‐inconsistent feedback can lower the cost of incentive pay to the firm. Copyright © 2015 John Wiley & Sons, Ltd.