Awards as Strategic Signals

Abstract

This contribution uses signaling theory to analyze the widely observed phenomenon of award giving. Awards appear in various forms, ranging from the Employee of the Month title to prizes, decorations, orders, and other honors. The purpose of this article is to develop an understanding of the signals emitted when awards are given and accepted, and to highlight conditions under which signaling failures are likely to arise. We take a comparative approach, contrasting awards with other incentives, in particular with monetary compensation and bonuses. Our analysis helps inform management practice by presenting a systematic appraisal of the strategic signaling functions of awards. It proposes under which conditions awards tend to raise performance, and when monetary compensation proves to be superior.

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