Datensatz

Zusammenfassung

Consider managers evaluating their employees' performance. Should managers justify their subjective evaluations? To scrutinize this question, I model justification: Suppose a manager's evaluation is private information. To justify her evaluation, she can gather additional information that is uninformative about her employee's effort. I show that the manager justifies her evaluation if and only if the evaluation indicates bad performance. The justification assures the employee that the manager has not distorted the evaluation downwards. For good performances, however, the manager pays a constant high wage without justification. Empirical literature demonstrates that subjective evaluations are lenient and discriminate poorly between good performances. I show that both effects occur in optimal contracts without any biased behavior.