An Exploratory Investigation of the Determinants and Ratings Implications of Performance Appraisal Plan Characteristics

An Exploratory Investigation of the Determinants and Ratings Implications of Performance Appraisal Plan Characteristics

By Christopher S. Armstrong, Christopher D. Ittner, David F. Larcker
April 17,2014Working Paper No. 3320

Performance appraisal is one of the cornerstones of management control systems. Although this topic has been the subject of considerable prior research, most of this work is based on a single observation per firm or performance appraisal practices within a single organization. In contrast, this study examines the design of performance appraisal systems using detailed proprietary data of the actual performance goals and the extent to which these goals are aligned among firm employees for 408,816 employees in 153 distinct firms. These novel data are analyzed using a two-step hierarchical approach that allows the contextual firm-level attributes to moderate the relations between the user characteristics and appraisal plan design attributes.