Subjective adjustments to objective performance measures: The influence of prior performance

This field study examines whether and how supervisors’ subjective adjustments to objective performance measures are influenced by their prior subjective evaluations of employees. Evaluations were determined entirely subjectively in the sample internal audit organization in 2005. In 2006, the organization introduced a pay-for-performance incentive plan that established four objective measures of audit manager performance. Then, knowing the challenges of objectively measuring manager performance, the organization gave supervisors the discretion, mandate, and training to subjectively adjust each of the objective measures when performance as indicated on the individual measures misrepresented managers’ true performance.Using prior-year subjectively measured performance to proxy for current-year expected performance, empirical evidence documents that upward adjustments are more likely to be made to unexpectedly low individual measures the more supervisors perceive deficiencies in those objective measures. This indicates that supervisors made adjustments to correct deficiencies in the measures (as the organization intended). Independent of this interaction effect, however, unexpectedly low current-year objectively-measured performances are also more likely to be adjusted upward, which indicates supervisors also made current performance consistent with prior performance for reasons other than to improve individual objective measurement. Some of these other reasons are explored. The study highlights how the impact of the implementation of a new performance measurement system depends on the past.