Management Accounting Section Midyear Meeting

Performance Appraisal on Employee’s Future Potential

• In Event: Performance Measurement V

Abstract

Identifying employee’s potential is a crucial yet challenging task for organizations. Performance appraisal provided by supervisors on employee’s “soft qualities” conveys a blurred message of the overall picture of employee’s competence, when the appraisal plays a dual role of rewarding employee’s past performance as well as delegating supervisor’s assessment on the future prospect. Using personnel and performance data obtained from a professional service firm in the Netherlands, I find that after the firm introduced a bonus to reward employee’s achieved performance, supervisor’s appraisals across multiple dimensions of competence becomes more dispersed. In addition, I find that the appraisal is less associated with current performance outcome, while it becomes more predictive of employee’s future performance. I also find that supervisor’s appraisal is taken into account to a greater extent by the firm when making a decision to promote the employee. The empirical evidence is consistent with my prediction that if the function of rewarding employees for their past performance is disentangled from the performance appraisal, the latter will become a more precise metric in gauging employee’s future potential.

Author

• Nan Jiang, University of Amsterdam