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More Dispersion, Higher Bonuses? On Differentiation in Subjective Performance Evaluations

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  • Patrick Kampkötter
  • Dirk Sliwka

Abstract

We investigate the claim that supervisors do not differentiate enough between high- and low-performing employees when evaluating performance. In a first step, this claim is illustrated in a formal model showing that rating compression reduces performance and subsequent bonus payments. The effect depends on the precision of performance information and may be reversed when cooperation is important. We then investigate panel data spanning different banks and find that stronger differentiation indeed increases subsequent bonus payments. The effect tends to be larger for larger spans of control and at higher hierarchical levels but is reversed at the lowest levels.

Suggested Citation

  • Patrick Kampkötter & Dirk Sliwka, 2018. "More Dispersion, Higher Bonuses? On Differentiation in Subjective Performance Evaluations," Journal of Labor Economics, University of Chicago Press, vol. 36(2), pages 511-549.
  • Handle: RePEc:ucp:jlabec:doi:10.1086/694588
    DOI: 10.1086/694588
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    Cited by:

    1. Lang, Matthias, 2019. "Communicating subjective evaluations," Journal of Economic Theory, Elsevier, vol. 179(C), pages 163-199.
    2. van Rinsum, M., 2019. "Utilizing Incentives and Accountability: In Control in Control?," ERIM Inaugural Address Series Research in Management EIA 2019-078-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..
    3. Matthias Efing & Harald Hau & Patrick Kampkktter & Jean-Charles Rochet, 2018. "Bank Bonus Pay as a Risk Sharing Contract," Working Papers hal-01847442, HAL.
    4. Kathrin Manthei & Dirk Sliwka, 2019. "Multitasking and Subjective Performance Evaluations: Theory and Evidence from a Field Experiment in a Bank," Management Science, INFORMS, vol. 65(12), pages 5861-5883, December.
    5. Dirk Sliwka, 2020. "Bonuses and performance evaluations," IZA World of Labor, Institute of Labor Economics (IZA), pages 478-478, July.
    6. John D. Marvel, 2020. "Evolution and egalitarianism: A behavioral account of managers' performance pay decisions," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(2).

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