Top-Down Sabotage in Organizations

Abstract

This dissertation develops a theoretical framework to examine sabotage across organizational hierarchy under relative performance evaluation (RPE). While peer-to-peer sabotage has been well-documented, I extend the principal-agent model to account for problems of adverse selection and moral hazard that may result from interaction between two agents, particularly when one can exercise hierarchical discretion over the other. Using the principal-agent-agent framework, I analyze conditions under which managers may exploit hierarchical authority to sabotage hiring and promotion prospects of high-ability candidates to prevent future competition for themselves, a phenomenon that I call top-down sabotage.

To complement the theoretical model, I design a real-effort experiment to analyze whether tournament incentives lead managers to sabotage promotions of their subordinates to prevent future competition for themselves. Additionally, I explore the effectiveness of feedback and monitoring as control mechanisms to mitigate sabotage across hierarchy. I find that managers are driven by personal strategic motivations to sabotage promotions of productive subordinates. When subordinates are significantly different in abilities, asking managers to justify their promotion decision leads to a significant reduction in sabotage. However, when promotion candidates have similar abilities, sabotage may exist but is hard to detect despite investment in monitoring. I also find that saboteurs take unjust credit for the work completed by their subordinates after sabotaging them, regardless of the difference in abilities of promotion candidates.