Subjective Performance Evaluation and Forward-Looking Implications: The Role of Supervisor Incentives

In this study, I examine whether supervisors respond to their own preferences in subjective performance evaluation under a forced distribution system (FDS). Using a proprietary, archival dataset in a car dealership, I find that subjective evaluations are higher when longer supervisor-subordinate relationships exist, whereas subjective evaluations are lower when greater supervisor-subordinate age differences exist. The empirical evidence also indicates that subjective evaluations predict promotions and future performance of the employees, implying that the use of subjectivity allows supervisors to incorporate the forward-looking information of employee performance despite its potential biases. This study contributes to the literature by focusing on the performance appraisal based on the FDS and documenting the impact of supervisor incentives on subjective performance evaluation. Data Availability: Data used in this study cannot be made public due to a confidentiality agreement.