Supervisors and Performance Management Systems

Abstract

We study how heterogeneity in performance evaluations across supervisors affects employee and supervisor careers and firm outcomes using data on the performance system of a Scandinavian service sector firm. Supervisors vary widely in how they rate subordinates of similar quality. In our model, this ratings heterogeneity can arise because supervisors can differ in their ability to manage subordinates or in their leniency when rating subordinates. Furthermore, firms might or might not be informed about this heterogeneity. The evidence suggests that supervisor heterogeneity stems, in part, from real differences in managerial ability that firms are partially informed about.