Job rotation and employee performance – evidence from a longitudinal study in the financial services industry

TLDR

Job rotation, a lateral transfer of employees within a company, is frequently used to develop employees, learn about their abilities, and motivate them. The study investigates the determinants and performance effects of job rotation using a large panel dataset from the German banking and financial services sector. The authors examine how prior individual performance influences the likelihood of rotation and how performance changes following rotation. The study finds that both low‑ and high‑performing employees rotate, with low performers rotating more often, yet only high performers experience a subsequent performance increase after rotation, while low performers show no significant change. Job rotation, i.e., lateral transfer of employees within a company.

Abstract

Job rotation, i.e. a lateral transfer of an employee between jobs within a company, is frequently used as a means to develop employees, learn about their abilities as well as to motivate them. We investigate the determinants and performance effects of job rotation empirically by analyzing a large panel data-set covering the German banking and financial services sector. In particular, we study (i) how prior individual performance affects the propensity to rotate and (ii) how performance changes after the rotation. We find that while both, low- and high-performers rotate, lateral moves are more frequent among low performers. However, those having been rotated between jobs achieve a higher performance in subsequent years as compared to other non-rotating employees in a comparable position. Interestingly, this effect is driven by high performers, whereas for low performers, we find no significant relationship between job rotation and future performance. The results thus suggest that firms should focus their job rotation programs on high performers and should not expect that low performers achieve performance gains when being rotated to a different function.