Relationships between Objective and Subjective Performance Ratings
Merchant, Kenneth A.; Stringer, Carolyn; Theivananthampillai, Paul
This study explored relationships between objective and subjective performance measures in a company setting where both were weighted equally in importance for allocating bonuses to high- and mid-level managers and professionals. We found that the correlation between the objective and subjective performance ratings was positive but small, which suggests no performance evaluation halo effect. Contrary to most prior studies, we found no evidence of the a subjective rating centrality bias; the subjective performance ratings were more highly differentiated than were the objective ratings. We found no evidence of a leniency bias in the subjective performance ratings, apparently because the company’s mandated maximum average subjective performance rating was rigorously enforced. However, we did find evidence of leniency in the objective measure portion of the system, and that leniency was particularly high in a time of economic stress. Finally, we found that the objective performance ratings were higher both for managers, as compared to professionals, and for employees at higher ranks, but they were lower for employees working at corporate level rather than in one of the SBUs. We discuss the possible causes and implications of these findings.
Conference: AFAANZ Conference, Christchurch
Series: Accountancy Working Paper Series
Keywords: performance measurement; performance evaluations; objective measures; subjective measures; halo effect; centrality bias; leniency bias; incentive compensation
Research Type: Conference or Workshop Item (Paper)