The anatomy of performance appraisals in Germany

Abstract

We investigate the use of performance appraisal (PA) in German firms. First, we derive hypotheses on individual and job-based determinants of PA usage. Based on a representative German data set on individual employees, we test these hypotheses and also explore the impact of PA on performance pay and further career prospects. The results include that PA is positively linked to an individual's willingness to take risks. The performance of older employees and woman is evaluated less often. Furthermore, larger firms evaluate the performance of their employees more. We find evidence for a non-monotonic relation between the hierarchical level and usage of performance appraisal: The performance of employees with very high or very low responsibilities is assessed less often.

Keywords:

• GSOEP
• performance appraisal
• performance evaluation

Notes

1. There are only a few studies on performance appraisals in Germany. Contributions include a case study of multisource feedback as a fundament of performance evaluation (Knoll 2004) and a descriptive examination of appraisal systems in financial sector firms (Becker and Stoecker 2000). Becker and Fallgatter (1998) provide a survey of mostly German language academic textbooks and business manuals on performance appraisals in general.

2. In the following we use the term job-based characteristics, when we refer to job and firm based characteristics such as tenure, job status, industry and firm size.

3. The data are provided by the German Institute of Economic Research (DIW, Berlin). See www.diw.de/english/sop/index.html for a detailed description of the corresponding questionnaire.

4. Unfortunately, the data do not include information on other possible consequences such as training issues due to the limited possibility to add items to the GSOEP.

5. It is quite interesting to note that a probit regression that does not include risk attitudes would show a strong and significantly negative age effect. Indeed, there is a significant negative correlation ( − 0.17) between age and the willingness to take risks.

6. We thank an anonymous referee for this suggestion.

7. Note that according to the descriptive statistics, performance appraisals are for instance less often used in agriculture than in retail, tourism, transportation and public and private services. But as our estimation results indicate, when we compare employees with the same job status and within firms of the same size performance appraisals are more often used in agriculture than in these two industries.