On the Relative Efficacies of Ranking and Absolute Performance Evaluation Systems

50 Pages Posted: 25 Aug 2016

See all articles by Ramji Balakrishnan

Ramji Balakrishnan

University of Iowa - Department of Accounting

Haijin Lin

University of Houston

Shiva Sivaramakrishnan

Rice University

Date Written: August 23, 2016

Abstract

Using a setting in which an employer seeks information about talent in order to achieve a proper match between talent levels and tasks, we provide a comparative analysis of two performance evaluation systems widely used in practice— ― an absolute performance evaluation system (APE) and a tournament or a ranking system (RE). An important consideration in such an analysis is the extent to which these systems are susceptible to performance manipulation, an endemic problem with most systems that are imperfect. Ranking systems are inherently superior to absolute performance evaluation absent performance manipulation. But, as we show, ranking systems are more susceptible to performance manipulation, and, therefore, absolute performance evaluation can dominate ranking systems in some settings. We also …find that greater ‡flexibility in task assignments leads to a preference for absolute evaluations. These …findings support the use of absolute performance evaluation even though such a system coarsens information about talent.

Keywords: Incentives, Measurement System, Relative Performance Evaluation, Promotion

JEL Classification: D82, G32, G34, M51, M53

Suggested Citation

Balakrishnan, Ramji and Lin, Haijin and Sivaramakrishnan, Shiva, On the Relative Efficacies of Ranking and Absolute Performance Evaluation Systems (August 23, 2016). Available at SSRN: https://ssrn.com/abstract=2828956 or http://dx.doi.org/10.2139/ssrn.2828956

Ramji Balakrishnan

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0958 (Phone)
319-335-1956 (Fax)

Haijin Lin (Contact Author)

University of Houston ( email )

390F Melcher Hall
Bauer College of Business
Houston, TX 77204-6021
United States
7137437771 (Phone)

Shiva Sivaramakrishnan

Rice University ( email )

6100 South Main Street
Houston, TX 77005-1892
United States

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