Appraising the Performance of Performance Appraisals

By Fisk, Peter C. | Monthly Labor Review, December 2016 | Go to article overview

Appraising the Performance of Performance Appraisals


Fisk, Peter C., Monthly Labor Review


The overwhelming majority of U.S. workers receive performance appraisals from their employers, but What do performance appraisals do? That's the question asked and answered by Peter Cappelli and Martin Conyon in a recent working paper (National Bureau of Economic Research, Working Paper 22400, July 2016).

The authors note that despite the relative ubiquity of performance appraisals, the economics literature is nearly devoid of research on the subject, including such fundamental points as why appraisals are used and how they actually affect employment outcomes and wages.

The study performs regression analysis on panel data for managerial employees from a single, large, publicly traded U.S. firm between 2001 and 2007. The authors identify advantages and potential disadvantages with this approach. For instance, it inherently controls for cross-firm heterogeneity but might not yield results that can be readily generalized. The paper observes that, although the business under study is far larger than most, its individual stores are comparable to other retail establishments, and store managers constitute 96 percent of the observations in the study. The data include appraisal scores, employment outcomes, and various demographic attributes. Top executives were excluded because it was apparent they don't receive performance appraisals.

Cappelli and Conyon acknowledge common criticisms of performance appraisals. One frequent criticism, supported by previous studies, is that supervisors are reluctant to flag substandard performance for fear of creating conflict in the workplace. This aversion, as the criticism goes, tends to yield a biased score distribution that Cappelli and Conyon dub the "Lake Wobegon" effect--where no worker is below average. Among other variations on the leniency-bias theme, critics have asserted that as supervisors develop personal relationships with employees, they become increasingly predisposed to overlooking substandard performance. …

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