By Susan R. Meisinger/HR Leadership Columnist
Surveys suggest around 95
percent of U.S. companies use
performance appraisals, and
they are now common around
the world. Psychologists have
regularly studied the factors
that cause appraisal scores to
be biased over and over, but the
most basic questions about how
well these performance reviews
work have rarely been asked.
Instead, we have preconceived
notions that don’t match up to
In a recent National
Bureau of Economic Research
working paper titled What Do
Performance Appraisals Do?
my colleague Martin Conyon
and I tried to answer exactly
that, as well as how they work.
We looked at the performance
appraisals for management
employees of a large U.S.
company over a seven-year
period. Among other things, we
found that appraisal scores did,
in fact, vary quite a bit across
individuals. It wasn’t the case
that everyone got a good rating
and no one got bad ratings. The
shape of the distribution looked
surprisingly normal, with
slightly more “poor” scores
than “excellent” scores.
We also found that
the appraisals did matter.
Employees who got very low
scores did tend to get fired,
those with pretty low scores did
tend to quit, those with the best
scores got promoted and so
forth. That might seem obvious,
but the prior research looking
at this simple question—now
decades old—didn’t find that.
Seniority tended to beat out
What most interested
us was a debate about the
purpose of appraisals and the
merit-pay increases associated
with them. Is their purpose
to “settle up” last year’s
performance? Or is it more
about improving performance,
treating employment as a
continuing relationship? You
might be inclined to say “both,”
but in practice, the outcomes
have to lean in one direction or
We found more evidence that
was consistent with the notion
that supervisors treated the
appraisal process more like a
continuing relationship than the
settling up of an annual contract.
In particular, the merit-pay
increases they gave rewarded
employees for improvements in
performance, not just for high
Reviews: The Continuing Conundrum
levels of performance. While
these results intrigued us, the
question that most interested
everyone else was whether good
performers this year would be
the good performers next year.
I wrote last month about the
tendency associated with the
“fundamental attribution error”
and the belief that performance
is really about the person and
not the situation—for example,
good performers are always
good and bad performers are
One of the things we looked
at was how well we could predict
the score for an employee based
on knowing his or her score for
the previous year. The answer:
not well. We could explain only
one-third of the scores next year
knowing the scores this year.
Changing managers didn’t
appear to have any consistent
effect on scores, either. That’s
contrary to the view that
supervisors get cozy with
subordinates and give them
higher scores over time.
While we only looked at
one company for this research,
nothing about it caused us
to think that its experience
with appraisals would be
unique. Surprisingly, almost no
research has ever explored this
question before. If you have
your own data, why not take a
look to see what you find?
Peter Cappelli is the
George W. Taylor Professor
of Management and director
of the Center for Human
Resources at The Wharton
School. Send questions or
comments to hreletters@lrp.
lawmakers last year
that attempts to define
“comparable work” and allows employees to
discuss salaries with other workers without
facing retribution from their employers. This
part of the legislation is not unusual this year;
California, New York, Maryland and Nebraska all
passed pay-equity legislation in 2016, expanding
employee protection from pay discrimination.
What’s unusual is that the Massachusetts
law also made it illegal for an employer to ask
prospective workers to provide a salary history.
It’s the first state in the nation to do so.
I’m comfortable in predicting that a
similar provision is coming soon to your state.
Consider this: The bill was passed unanimously
by the Massachusetts House and Senate,
which are controlled by Democrats, and was
signed into law by the governor—who is a
Republican. It was a bipartisan measure.
The stated goal of this and other pay-equity legislative measures is to eliminate
practices that can perpetuate lower salaries
for women. Since many employers base a new
hire’s compensation on a candidate’s previous
compensation, those who are paid less—
frequently women—are at a disadvantage;
earlier pay inequities are perpetuated.
What does all this mean for HR
Well, for starters, stay on the watch for
litigation as some of the terms that are used
in the Massachusetts law and other laws are
defined and refined. Massachusetts employers
will also have to change job applications (“list
previous salary” will have to go) and provide
training on the new law for recruiters, HR
staff and hiring managers.
I know it seems like there’s always new
Pay Attention to Pay Equity
legislative or regulatory mandates that make
continuous professional development a must
for HR professionals and managers. So why am
I highlighting this one?
I believe the Massachusetts statute
represents a noteworthy move by a state
legislature into dictating how employers can and
can’t negotiate compensation with a candidate.
Although the law allows a candidate to
volunteer compensation information, it will be
a question of fact as to whether the information
was really volunteered or was, as a practical
matter, extorted from a candidate. And while
the law doesn’t preclude an employer from
asking what the candidate expects as salary,
doing so may involve some risk. For example,
how will HR ensure that a hiring manager
doesn’t, upon hearing that the candidate would
like to be paid $50,000, respond by asking the
candidate “Why?” … causing the candidate to
say that “it’s 10 percent more than my current
The Massachusetts Pay Equity Act isn’t
scheduled to take effect until 2018, and
the state’s attorney general must still issue
Yet while 2018 may seem a bit far off,
Massachusetts employers should probably
begin to gear up for the changes today,
modifying applications, checking pay practices
to identify potential inequities, and developing
training for HR and hiring managers.
And as for those based in other states? Well,
were I in their shoes, I wouldn’t be breathing a
sigh of relief. I’d be worried, too.
Susan R. Meisinger, former president
and CEO of the Society for Human Resource
Management, is an author, speaker and
consultant on human resource management.
She is on the board of directors of the National
Academy of Human Resources. Send questions
or comments to email@example.com.