Here is an excerpt from an article written by Will Demeré, Karen L. Sedatole, and Alexander Woods for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, obtain subscription information, and receive HBR email alerts, please click here.
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Performance evaluation systems are critical for evaluating, motivating, and rewarding employees, but companies are hard-pressed to find a system that achieves these goals and promotes fair evaluations. Inconsistencies and biases in the evaluation process can leave employees dissatisfied and demotivated, especially if undeserving employees are rewarded and recognized while more deserving employees are left empty-handed.
These challenges are particularly pronounced in professional settings where objective measures of performance can be hard to capture and performance evaluations are more subjective. Subjectivity can allow inconsistencies and biases to creep into performance ratings. Differences between supervisors contribute to these inconsistencies, as one supervisor’s rating of five might be someone else’s three. Some supervisors also show favoritism, inflate ratings, or use inconsistent standards for different employees. This can be true even in organizations that have moved away from formal end-of-year evaluations to more-frequent and informal feedback sessions.
So how can inconsistencies and biases be minimized or eliminated? How can the fairness of the system be improved? Are there ways of strengthening the link between performance and rewards?
One approach some companies have taken is to use calibration committees, which are generally composed of higher-level supervisors. These committees adjust the ratings supervisors give employees, in an effort to improve consistency. To understand the role of these committees in performance evaluation systems, we collaborated with a multinational organization to study its use of calibration committees over a three-year period.
Their evaluation process starts with supervisors subjectively rating employees’ performance. The ratings of employees for each level or cohort are then passed to a calibration committee, which is composed of supervisors and other higher-level managers. The calibration committee meets to achieve a common understanding of the types of achievements and contributions that warrant various performance ratings. Based on this understanding, the committee then determines whether to adjust individual performance ratings. Once the committee has determined the final ratings, supervisors hold meetings with employees to discuss their ratings.
It may seem counterintuitive to allow a committee to adjust the ratings of employees they generally do not observe firsthand. But even though supervisors may have better information than calibration committees about the performance of individual employees, they do not know how the ratings they assign compare with ratings given by other supervisors. The committee has this macro-level knowledge, which enables them to assess ratings across all supervisors and promote greater consistency in performance ratings.
Our study, which is forthcoming in Management Science, found that the calibration committee adjusted ratings 25% of the time in the organization we studied. Ratings were decreased four times as often as ratings were increased, which lowered the overall average rating. Downward adjustments were also larger than upward adjustments.
Ratings were more likely to be adjusted downward when given by a supervisor who tended to give higher-than-average ratings, while ratings were more likely to be adjusted upward when given by a supervisor who tended to give lower-than-average ratings. This addresses the common concern that some supervisors are more lenient in giving ratings while others have stricter rating standards. Because of the calibration adjustments, the final ratings were more consistent across supervisors.
Not only did the calibration process contribute to improved consistency, but supervisors also modified their rating behavior in response to the process. Interestingly, a supervisor’s reaction depended on the direction of the adjustment. If an employee’s rating was increased by the calibration committee, the supervisor gave a higher rating to that employee in the next period, essentially matching the calibration committee’s adjustment from the previous period. Adjustments that resulted in a lower rating, however, were only partially incorporated into the next period. Supervisors gave a lower rating, but not to the full extent of the calibration committee’s downward adjustment from the previous period.
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Here is a direct link to the complete article.
Will Demeré is an Assistant Professor of Accountancy at the University of Missouri’s Trulaske College of Business. His research focuses on performance evaluation systems, incentives, and corporate governance.
Karen L. Sedatole is a Professor of Accounting at Emory University’s Goizueta Business School. Her research focuses on the design and effectiveness of performance measurement and reward systems, the role of forecasting and budgetary systems within organizations, and control in inter-organizational collaborations.
Alexander Woods is an Associate Professor at the College of William and Mary’s Mason School of Business. His research focuses on performance measurement and evaluation, incentives, and management control.