Accounting section researchers Bei Shi and Sander van Triest have investigated how much managers rely on opinions and impressions, rather than objective measures when evaluating their employees. It is often claimed that ‘what you measure is what you get’, but to what extent can employee performance actually be measured?

What sparked your curiosity?

Textbooks and research in accounting and in economics assume that managers rely on measured outcomes when evaluating their employees (or at least to a large extent): employee activities can be evaluated by some objectively available outcome such as sales revenues or completed transactions. Managers will only use subjective measures when there are no good objective measures. However, when looking at employees at the operational level – whether they are auditors, financial analysts administrative assistants, teachers, nurses, construction workers, or stock clerks – it does not seem likely that there are many objective measures of performance managers can use. So we asked ourselves: how important is subjectivity in evaluating employee performance?

What did you discover?

We surveyed over 500 front-line managers from various industries and organizations, and we found that managers place a weight of (only) 25% on objective measures. Subjective opinions are much more important, both from the managers themselves (47%) and from others such as co-workers and clients (28%). This means that most of the evaluation of employees happens based on impressions, shared experiences and opinions, rather than on directly measured performance. More experienced managers are more willing to rely on subjective measures, probably because they are more confident in their own judgment. However, when the results of the evaluation is more likely to be challenged, managers reach for objective information more often: this happens when employees perform less well, or when the outcome is more important for decisions regarding pay and promotion.

Why do these findings matter?

Performance evaluation happens in almost every organization, and accounting information is an important input for these evaluations – but maybe not as important as the textbooks suggest. At the same time, when managing people becomes more difficult, managers use it more. We think these results help in understanding why pay for performance is not easy to implement at lower levels of the organization. They also underline both the challenges and the importance of developing good and accurate performance measures.

Literature:

Shi, B., & van Triest, S. P. (Online Early). What determines managers’ use of subjective performance information? Accounting and Business Research (open access).