Individual Submission Summary
Share...

Direct link:

Are Employee Self-Evaluations Helpful or Harmful When Employee Compensation Is Determined Subjectively?

Fri, October 4, 1:45 to 3:15pm, TBA

Abstract

This study examines the effect of self-evaluations on employee satisfaction with compensation, employee retaliation behavior against the employer, employer welfare, and employee perception of performance. Specifically, it examines whether asking employees for a self-assessment of performance helps or hurts the employer when the employee’s compensation contains a subjectively determined component. Typically, when an employee’s compensation is based on the subjective judgment of the employer then the employee cannot objectively verify how the compensation is determined. Hence employees have only their perception of performance to determine the fairness of their compensation. This creates a dilemma for employers because employees tend to overestimate their performance. This overestimation can falsely lead employees to feel as though they are underpaid, which in turn leads them to take retaliatory actions against employers. Self-evaluations could potentially mitigate such retaliatory tendencies identifying employee perception bias and enabling employers to align employee compensation with employee self-perceptions. I present experimental evidence showing that self-evaluations have the unintended consequence of leading to an increase in employee overconfidence consistent with a motivated reasoning explanation and thereby decreasing employee satisfaction with compensation and leading to lower employer welfare. My findings show a cost to asking for self-evaluations that, thus far, has not been sufficiently considered in the literature.

Author