EC 5

Question 1

Subjectivity – Gibbs et al. (2004)

Answer 1

• Subjectivity in compensation contracting is used to improve congruence and noise problems that are intrinsically linked to the use of performance measures
• Subjectivity increases pay satisfaction, productivity, and profitability but only when it is applied in a trusting environment
• Important: subjectivity is mainly used in more complex, multi-task, and noisy environments. As there is a cost to the use of subjectivity (favoritism and influence costs), there is no real need to use subjectivity in ‘easy’ environments.

Question 2

Subjectivity – Ittner et al. (2003)

Answer 2

Giving supervisors too much freedom to use subjective performance evaluation will likely not lead to fair performance evaluation

Question 3

Subjectivity – Demere et al. (2019)

Answer 3

• A calibration committee is a team of supervisors and higher-level managers which executes the subjective performance evaluation
• This study documents that…
• Calibration committees improve consistency, reduce leniency, but increase centrality
• Calibration committees take into account information advantages of supervisors when making adjustments and help supervisors to learn about performance expectations