How Formal Performance Evaluation Affects Trust between Superior and Subordinate Managers
38 Pages Posted: 1 Aug 2006
Date Written: October 2006
Abstract
An important question in the control literature concerns the role of interpersonal trust in the design and functioning of formal control systems for collaborative settings. Although some studies regard trust and formal controls as independent phenomena, recently studies have explored how formal controls affect interpersonal trust. These studies provide mixed results, as they show both positive and negative effects of formal control on trust. This suggests that our understanding of the mechanisms through which, and the conditions under which, formal control affects trust is important, but still limited. In this paper we aim to enhance our understanding of this relationship by investigating the relationship between formal control and interpersonal trust for the collaborative setting of superiors and subordinates. We argue that subordinate's trust in the superior depends on the formality of the performance evaluation procedure, that this relationship is mediated by managerial perceptions of justice and feedback, and that these effects differ across managerial functions. We test our expectations using survey data from a sample of 160 managers in 11 commercial banks. Overall, we find that formal performance evaluation affects trust, and that this relationship is mediated by managerial perceptions of justice and feedback. Furthermore, we find that formality matters more for managers in functions with less contractible outputs. The paper contributes to the literature by providing empirical evidence on the antecedents of trust in a performance evaluation setting. Furthermore, it provides additional evidence of positive effects of controls on trust, yet shows that these positive effects are contingent on the exact managerial setting.
Keywords: trust, formality, performance evaluation system, procedural justice, feedback quality
JEL Classification: M49, M52
Suggested Citation: Suggested Citation