An untested assumption in the gainsharing and group incentive literatures is that peer monitoring is an activity that employees will engage in, and this behavior will be supported by their managers. This study tests that assumption by examining how managers respond (via performance ratings of workers) to peer monitoring under two different pay conditions—traditional merit pay and merit pay with gainsharing. Data from 203 employees in a custom brokerage and freight-forwarding services firm suggest that observational monitoring (i.e., noticing coworkers' behavior) is positively associated with manager ratings of workers' performance under both pay conditions. However, advisory monitoring (i.e., reacting to coworkers' behavior) is positively related to manager ratings of workers' performance under gainsharing and negatively related to manager ratings of workers' performance under traditional merit pay. Implications of these findings for managers are discussed.
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