The benefits of evaluating performance subjectively

Abstract

Subjective performance evaluations play important roles in almost all jobs, from the lowest levels of the organization to the CEO. In this article, we describe findings from our research into the determinants and effects of subjectivity in incentive systems based on extensive survey data of compensation practices in U.S. car dealerships. We find evidence that subjective bonuses are an effective intervention tool that is used to mitigate perceived weaknesses in formula bonus awards and to reduce performer risk by recalibrating incentives. We also find that the advantages of using evaluation subjectivity, such as increases in performer productivity and pay satisfaction, depend on characteristics of the situations in which it is implemented. Particularly important is the level of trust between the performer and evaluator