Abstract
ABSTRACTWhile prior research on performance evaluation bias has mainly focused on the determinants and consequences of rating errors, we investigate how a firm can provide implicit incentives to supervisors to mitigate these errors via its calibration committee. We empirically examine the extent to which a calibration committee incorporates supervisors' evaluation behavior with respect to their subordinates in the performance evaluation outcomes, i.e., performance ratings and promotion decisions, for these supervisors. In our study, we distinguish between lack of skills and opportunism as two important facets of evaluation behavior, which we expect the calibration committee to address differently. Using panel data of a professional service firm, we show that supervisors' opportunistic behavior to strategically inflate subordinates' performance ratings is disciplined through a decrease in the supervisors' own performance rating, while the supervisors' skills to provide less compressed and, thus, more informative performance ratings is rewarded through a higher likelihood of promotion.
Highlights
An increasingly used management control innovation aimed at mitigating performance evaluation bias is to allocate decision rights over performance ratings to so-called calibration committees (e.g., Demeré, Sedatole, and Woods 2019)
We focus on the lack of supervisory skills and opportunism as two important facets of evaluation behavior that the calibration committee aims to address
We argue that the calibration committee uses the annual performance ratings and promotions to address opportunistic and skill-driven bias, and we describe the relative importance of these two mechanisms in solving these different types of incentive issues in our hypotheses development
Summary
An increasingly used management control innovation aimed at mitigating performance evaluation bias is to allocate decision rights over performance ratings to so-called calibration committees (e.g., Demeré, Sedatole, and Woods 2019). These committees, typically comprised of higher-level managers, review and potentially adjust a subordinate’s initial performance rating provided by the direct supervisor. Demeré et al (2019) provide the first evidence on the role of calibration committees in subjective performance evaluation systems and examine the nature of calibration committee adjustments to supervisors’ reported ratings of their subordinates. The calibration committee tries to correct error-prone ratings provided by the supervisors, but at the same time tries to identify, to the best of its ability, the supervisors that cause biased performance ratings
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