The implications of rating systems on workforce performance

Abstract

Enhancing workforce performance is the key to success for professional firms. Firms often evaluate workers based on their performance compared with their peers or against an objective standard. Which of these rating systems leads to higher workforce performance? To answer this question, we construct game-theoretic models of two performance rating systems: (i) a Relative rating system where workers compete with each other for a constrained number of high ratings, and (ii) an Absolute rating system where workers are awarded high ratings by performing at or above a standard threshold. We derive the workers’ equilibrium performance as a function of their ability and the characteristics of the rating pool. From a firm’s perspective, we find that an Absolute rating system can lead to higher performance than a Relative rating system when the rating pool size is small or the workers’ cost of effort relative to their efficiency rate is low, and the reverse holds true otherwise. When considering the workers’ perspective, we find that higher ability workers prefer an Absolute system due to its predictable nature, while lower ability workers prefer a Relative system as it provides them an opportunity to outperform other workers.

Keywords:

• Workforce management
• rating system
• performance evaluation
• game theory

Acknowledgments

The authors thank the Department Editor and anonymous Associate Editor and reviewers for their suggestions, which have greatly improved the paper. The authors also thank Colonel James Dooghan of the US Army, Cheryl Gaimon, Karthik Ramachandran, and Onesun Steve Yoo as well as the seminar participants at Georgia Institute of Technology for their insightful comments.

Notes

1 For instance, rating systems such as behavioral checklists and graphic rating scales share similar characteristics as with the Absolute system in the sense that workers are evaluated against an objective standard. However, rating systems such as rank ordering, paired comparison, and forced distribution share similar characteristics as with the Relative system as a worker’s performance is compared against that of his peers (Cascio and Aguinis, 2018, Ch. 5).

Additional information

Notes on contributors

Christopher Green

Christopher Green is a PhD student at the Scheller College of Business at Georgia Institute of Technology. He received his MS in management science and engineering from Stanford University. His general research topics of interest include: behavioral operations, workforce management, and managerial decision-making. He is a career U.S. Army officer with over 18 years of service with experience in conventional and special operations. He currently serves as the battalion commander for 5th Ranger Training Battalion in Dahlonega, Georgia.

Morvarid Rahmani

Morvarid Rahmani is an assistant professor at the Scheller College of Business at Georgia Institute of Technology. She received her PhD in operations management from the University of California Los Angles (UCLA), MS in electrical engineering from UCLA, MA in economics from UCLA, and MS in industrial engineering from Sharif University. Her general research topics of interest include: innovation and team management, knowledge-intensive work processes, service operations, and social sustainability. Her research has appeared in academic journals such as Management Science, Manufacturing & Service Operations Management, and Production and Operations Management.