What Do Performance Evaluations Really Do?
A new study shows that performance evaluations do influence several employee outcomes, including bonuses, merit pay, promotions, and decisions to exit the firm. This study suggests that performance evaluations do more than settle-up contractually based employment relationships. They are consistent with a relational, open-ended view of the employment relationship.
Peter Capelli and Martin Conyon examined the impact of performance evaluation on employee outcomes using multi-year data on managerial employees from a large, publicly traded US firm.
Based on Capelli and Conyon’s analysis, we can answer five important questions as follows:
- Do performance evaluations differentiate? Yes, they do.
- Do long-term relationships between managers and employees bias scores upward? No, they don’t.
- Do performance evaluations impact future performance? Yes, they do.
- Do performance evaluations impact merit pay increases and bonus payments? Yes, they do.
- Do employers reward improvements in performance? Yes, they do.
Do performance evaluations differentiate? The distribution of scores was reasonably close to normal. The authors note that the lower tail of the distribution (lower scores) is longer than the upper tail (higher scores). This finding suggests that managers do give poor evaluations to below-average performers.
Do long-term relationships between managers and employees bias scores upward? Capelli and Conyon examined the pre- and post-promotion evaluation scores (given by different managers). They found no indication that long-term relationships with supervisors’ biases score upward, or that breaking those relationships by changing supervisors when promoted leads to lower scores.
Do performance evaluations impact future performance? Capelli and Conyon found substantial variation in year-over-year employee performance. This finding does not support the notion that job performance is determined solely by initial human capital or employee dispositions (good performers are always good, bad performers are always bad). Rather, the authors suggest that how employees are managed matters.
Do performance evaluations impact merit pay increases and bonus payments? The relationship between evaluation scores and compensation is positive and statistically significant. This finding is not particularly surprising, but directly addresses the critique of evaluation scores failing to link pay to performance.
Do employers reward improvements in performance? The authors found that changes in evaluation scores from the previous year are significantly related to promotion, demotion, dismissal, and quits. This finding suggests that performance evaluations do more than “settle-up” performance from the previous year. They drive decisions about promotion, demotions, and dismissals.
When was your last performance evaluation?
Was it helpful in your own personal growth?
