Internal Transparency of the System and Dependence on Creativity: Bias Effects on Performance Evaluation and Bonuses

Abstract

This article examines the effects of internal transparency of the performance measurement system (PMS) and the dependence on creativity on bias behaviors in performance evaluation and bonus determination. A 2x2 (4-case) between-subjects online experiment was conducted with undergraduate accounting and business students, presuming that performance evaluations can be influenced by (high vs. low) internal transparency of the PMS and (high vs. low) dependence on creativity. The results indicate that extremes in configurations of the PMS and dependence on creativity are prone to evaluator biases. High internal transparency of the PMS and high dependence on creativity leads to greater centrality bias (compression) in bonus allocation, whereas low transparency and low dependence on creativity result in lower centrality bias (differentiation). The interaction between these configurations demonstrates an intensification of biases. These findings have theoretical and practical implications, as they identify determinants of bias in bonus allocations during performance evaluations, extend discussions on internal transparency in enabling formalization of the PMS, and provide evidence of how the design characteristics of the PMS affect managerial bias behaviors during performance evaluation.

Keywords: performance measurement system, Internal transparency, Dependence on creativity, performance evaluation, Bonuses, Bias behaviors