Are Employee Self-evaluations Helpful or Harmful When Employees Are Unaware of Their Marginal Contribution to Firm Welfare?

45 Pages Posted: 17 Aug 2010 Last revised: 23 Sep 2018

Date Written: September 3, 2018

Abstract

This study examines the effect of eliciting self-evaluations from employees on employee perceptions of performance and employer welfare in a compensation setting context where employees do not know their marginal contribution to firm welfare. The literature suggests that giving employees a voice in the compensation setting process has positive effects, such as increased employee satisfaction, which, ultimately, is thought to benefit employers (Jenkins and Lawler 1981, Roberts 2003). Contrary to this position, based on research on overconfidence and anchoring, I propose that eliciting employee self-assessments of performance in the context of a compensation setting process has the unintended consequences of the anchoring of employees on an inflated perception of performance and higher employee compensation demands, which decrease employer welfare. I present experimental evidence from the comparison of a control condition without self-evaluations and three self-evaluation reporting conditions that is consistent with the premise that eliciting self-evaluations decreases employer welfare. Data collected on employee perceptions of performance support the notion that eliciting self-evaluations leads to an anchoring process. My findings reveal a cost of self-evaluations that, thus far, has not been sufficiently considered in the literature.

Suggested Citation

Reichert, Bernhard Erich, Are Employee Self-evaluations Helpful or Harmful When Employees Are Unaware of Their Marginal Contribution to Firm Welfare? (September 3, 2018). AAA 2011 Management Accounting Section (MAS) Meeting Paper, Available at SSRN: https://ssrn.com/abstract=1659351 or http://dx.doi.org/10.2139/ssrn.1659351

Bernhard Erich Reichert (Contact Author)

Virginia Commonwealth University ( email )

Richmond, VA
United States

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