Supporting underperforming agents: The role of human capital development and relative performance information

We study principals’ use of performance information to allocate human capital development resources to underperforming agents. We use proprietary data from a retail firm that sets uniform, noncalibrated performance targets to ensure consistent quality and customer experience across all stores. Unlike calibrated targets, uniform, noncalibrated targets do not account for heterogeneity in local conditions. Given that human capital development is costly, we predict and find that principals do not support all agents who underperform on noncalibrated targets. Instead, they use relative performance information and concentrate support on underperforming agents who outperform their geographical peers. In contrast, for calibrated targets, we find no evidence that principals rely on relative performance; agents who underperform calibrated targets are generally eligible for human capital support. Consistent with our assumption that relative performance is informative about returns to human capital investment, we find that support for underperforming agents who outperform their peers improves performance.