The Ratchet Effect in Performance Target Setting: A Literature Review

Performance target setting is one of the core issues in the design of incentive contract, while the ratchet effect is among the most important and extensively discussed areas in goal setting research. This paper reviews relevant studies from three perspectives: the existence of target ratcheting, the causes and impacts of target ratcheting, and the influencing factors of target ratcheting. It focuses on evaluating the influencing factors that mitigate the impact of the ratchet effect in target setting. By organizing and summarizing existing research findings, this paper aims to assist researchers in advancing studies related to performance targets and identifying potential research gaps in target ratcheting.