What Guides Subjective Performance Evaluation: Incentive Provision or Norm Enforcement?

Abstract

This paper investigates the objectives guiding a superior’s subjective evaluation of subordinate performance. In a laboratory experiment, we implement a team production setting under uncertainty, where subordinates contribute to joint output by choosing effort levels, but individual contributions are subject to random shocks. After observing joint output, the superior can invest into additional (perfect or imperfect) information about effort levels. We test two competing hypotheses about objectives guiding a superior’s subjective performance evaluation. The incentive provision hypothesis states that the superior is guided by the objective to establish incentive compatibility in that it is in a subordinate’s self-interest to provide effort. In contrast, the norm enforcement hypothesis states that the superior has a focus on subordinate behavior and wants to enforce the norm of cooperation by rewarding high and punishing low effort. Our results reject the incentive provision hypothesis and provide strong support for the norm enforcement hypothesis.

Keywords: subjective performance evaluation, norm enforcement, incentive provision, fairness

JEL Classification: M41, M52