Subjectivity and relativity Flashcards
What two design choices (vs.) are we discussing when we talk subjectivity and relativity
Subjectivity is opposed to objectivity and relativity is opposed to absolute measures
What is a subjective performance evaluation?
A subjective evaluation is a design choice based on the manager’s/principal’s own subjective assessment of the employee’s/agent’s performance. It is unlike objective measures, not verifiable by a third-party
Why might someone choose subjective measures in addition to objective measures?
Baker (1994) argues they might augment or replace explicit objective contracts. Often your contribution is not objectively measurable or is best complemented by subjective assessments.
When it is hard to specify behavior which is hard to specify ex ante and measure objectively
How do you evaluate subjectively?
Subjective; measures, targets and weights
What are advantages of subjective performance measures?
Enhances completeness, reduces distortion (specification, multi-tasking + adaption), lowers risk when ex post corrections remove errors from uncontrollable conditions
Challenges of subjective measures?
High measurement costs, tension: Reneging, favoritism, leniency bias, hindsight bias, problem of common understanding, SDT: negative impact on autonomy. Fairness: higher risk of being perceived as unfair due to nature of subjectivity
Explain reneging
Reneging, e.g. occur when performance is not rewarded as promised. This happens when the agreements (e.g. a bonus) is not explicit or objective, but rather reliant on the principals subjective evaluation - non-verifiable.
Issue rises from expectations and insufficient trust.
Consequences involve demotivation, lower cooperation and lower performance.
Relationship trust and creating a credible commitment is key.
Explain favoritism
Expectations that some will be favored demotivates others and results in lower effort, poor information sharing and political work (lobbying).
solutions:
1. Rotations: to limit relationship ties.
2. Seniority: time = promotion
3. Link manager reward with employee output.
4. Monitoring and punish
Explain leniency bias
When the manager is reluctant to give a poor rating (psychologically or due to self-interest).
The agent tends to overestimate their own performance
solution: forced rankings
Explain hindsight bias
When performance is based on current ability to look back and see the full picture, and discounts the conditions the agent had at the time
Explain the problem of common understanding
When the subjective measures are understood differently between the agent and principal, due to:
- cognitive limitations
- convention: your expectations to the other person’s understanding (driving right side of the road)
How does the “constant care” case of Mærsk illustrate lack of common understanding?
The saying “in Mr. Møller’s view” installed the idea that no detail was too small, no effort was too big. This fostered a harmful “zero error culture”
What are 3 strategies to develop common understanding?
- Direct communication
- Public com: be specific and avoid confusion from 1:1 exchanges
- communication through action
What are common reasons to manipulate d with performance ratings (subjective)?
Overrating might happen due to:
- to get more money for employees to keep the motivated
- leniancy bias
- Get rid of a bad employee (have them promoted)
- manager wants to look good
Underrating might happen:
- punishment of the employee
- Get rid of employee (fire)
- Signal they are not wanted
What are challenges of subjective ratings?
- Disappoiting intervention, limited improvement follow
- Contextual effects of doing ratings: culture, fairness, political actions (lobby)
- Feedback might be inaccurate if rating is false
What are some arguments defending the use of ratings?
- Evaluation happens anyways
- Difficulty is not an excuse
- Quantification does not mean dehumanization
- Important for competence development
- Self selection effect: might attract high performers
What is the main idea of relative evaluation?
It is the comparison of employees, teams, or divisions to evaluate performance.
This could be through benchmarking and internal or external relative evaluations
What are the two main types of relative evaluation?
Relative measures – Comparing performance along a given dimension.
Relative standard/target setting – Setting a benchmark or target based on comparisons ex post
What are pros and cons of relative evaluations?
Pro:
- Lowers local risk by ensuring ‘fair’ measures within your team/branch rather than objective and generalized.
- healthy competition
- attract hawks (Self-selection effect)
- When used for facilitation it might enhance knowledge sharing
- helps identify low performers
cons:
- competition
- could limit knowledge sharing when tied to incentives
- sabotage
How does relative target setting differ from absolute target setting?
Instead of fixed goals, employees are compared to each other.
Targets are set ex post (after performance is observed).
Can be formally set by the company or informally estimated by employees
What are the two types of relative performance evaluations?
Objective measurements with relative targets (e.g., ranking salespeople by revenue): comparing actual objective results
Subjective measurements with relative targets (e.g., ranking employees based on teamwork or innovation): comparing qualitative criterias
What are the pros and cons of relative target setting?
✅ Reduces high general risk
✅ Reduces manipulation by eliminating adverse selection (no need to hide info)
❌ Increases distortion (can undermine teamwork).
❌ Can lead to sabotage and lack of information sharing.
❌ Higher measurement costs (finding comparable employees takes resources).
❌ High local (individual) risk requires absolute evaluations as they are not comparable
How do personality and culture affect relative evaluations?
Hawks (competitive employees) thrive in relative evaluation.
Doves (collaborative employees) may be demotivated.
Culture matters – equality clashes with relative measures.
Mixing personality types can intensify the problem
How does employee interdependence impact relative evaluation?
If employees are highly dependent on each other, competition can be harmful.
Companies should align hiring with their evaluation system (competitive vs. collaborative culture).
