Morvarid Rahmani, Georgia Tech Scheller College of Business assistant professor of operations management, and Chris Green, Ph.D. student, have published a paper in IISE Transactions detailing the effect performance reviews can have on performance. They describe two types of performance review rating systems used to assess employee achievements by examining The United States Army. Their analysis concludes that both types of systems work effectively depending on the organization and the group of employees being assessed.
Rahmani and Green constructed game-theoretic models to examine two types of performance review ratings: Relative and Absolute. The Relative rating system “compares the performance of workers against their peers and uses the effect of competition in the workplace to incite workers to increase performance,” whereas the Absolute rating system “awards high ratings to workers when their performance meets or exceeds a standard threshold.”
The article addresses the following research questions: from the firm’s perspective; what rating system (Relative or Absolute) leads to higher workforce performance, how does the optimality of a rating system depend on characteristics of rating pools and workers, and what is the preferred rating system from the workers’ perspective?
They studied The United States Army due to its diversity of employee categories. Rank structure, occupational specialty, and work environment all contribute to differences in how these systems may affect each employee. Currently, those with a higher rank within the Army receive a Relative rating while more junior soldiers receive an Absolute rating.
The researchers suggest that organizations can look at both rating systems to motivate employees depending on their job duties. They conclude that a “Relative rating system can lead to higher performance when the rating pool size is large or when the nature of the job is more knowledge-intensive, whereas an Absolute rating system prompts higher performance in smaller rating pools with more routine tasks.”
From an employee’s perspective, the team found 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.”
Read the full text of the article “The Implications of Rating Systems on Workforce Performance.”