Management Accounting Section Midyear Meeting

Forced Ranking Systems from Employee and Supervisor Perspectives

• In Event: Performance Measurement II

Abstract

Many firms use forced ranking systems in which supervisors rate their employees according to a forced distribution. In this paper we develop theory suggesting the use of forced rankings - compared to when a supervisor is free to decide about the performance ratings (i.e. free rating system) - can be detrimental when supervisors assess subjective dimensions of employee performance. We conduct an experiment in which employees develop creative solutions for societal problems and supervisors rate employees’ performance. We find that forced rankings can induce more effort (time spent) only in more homogenous teams, but overall forced ranking create higher stress levels for employees (ex-post stress scales and bio-markers). Moreover, we find high stress levels also mitigate positive effects coming from increased effort on creativity. Furthermore, we find supervisors’ ratings of employees’ performance in the forced rankings are explained less by the actual creative performance. Instead, aspects such as eloquent writing (readability indices, complex words) and strategic gaming behavior (intertemporal swapping of ranks) are more important than under the free rating system. Our evidence highlights important detrimental effects of forced ranking systems for companies that rely on more subjective dimensions of employee performance.

Authors

• Eddy Cardinaels, Tilburg University and KU Leuven

• Christoph Feichter, Vienna University of Economics and Business