Unwanted Recommendation

Abstract: In performance appraisal processes, corporations face the problem that the subjective ratings of employee performance tend to be largely biased toward being too favorable and too homogeneous. Drawing on prospect theory, we conceptualize below-average employee ratings as perceived losses and suggest that the proportion of such ratings increases under a recommended rating distribution because of a higher rating dispersion. The perceived losses may decrease employees’ organizational commitment, job satisfaction, and cooperation while increasing their turnover intentions. Using a large-scale, dual-source proprietary panel dataset from the German Federal Employment Agency, we show that a recommended distribution rating system is negatively related to organizational commitment, while job satisfaction, turnover intentions, and cooperation are unaffected when considering the whole sample. Post-hoc analyses reveal that the adverse effects appear in employees without managerial responsibility, while employees with managerial responsibility remain unaffected by the recommended distribution rating system.