Beyond Performance: Does Assessed Potential Matter to Employees’ Voluntary Departure Decisions?

Journal of Accounting Research · 2023 · Volume 61 · Issue 4

Abstract

Firms are increasingly implementing performance–potential assessment systems, whereby supervisors evaluate employees’ current performance and future-oriented potential (i.e., promotion prospects). Whether retention is greatest for high performance–high potential (HiPo) employees under such a system is an empirical question—while the “promise” of a promotion may aid retention, these employees likely face attractive outside options. Using data from a multinational firm, I find that HiPos generally depart at a lower rate thanlower performingnon-HiPos. Among shorter tenured employees, I find the strongest evidence that potential matters to departures, above and beyond performance. In several instances, the rate of departure is lower when assessed potential is higher, holding performance constant. This is the case both among higher performers, where high potential leads to HiPo status, and among lower performers where high potential affords no such status. My findings suggest that HiPo status and potential ratings may help in facilitating employees’ early sorting decisions.

Keywords

employee turnover, performance evaluations, promotions

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