This paper examines the up and down sides of subjective performance evaluations. Most contemporary workplaces use subjective evaluations, because objective performance measures are typically unavailable. Previous theories predict the following. Subjective evaluations have advantages. First, they contribute to enhance incentives when workers conduct multi-tasking jobs. Second, they also contribute to enhance incentives when workers face uncontrollable risks. At the same time, subjective evaluations have disadvantages. First, bias including favoritism is concomitant. Second, the bias has negative impact on productivity. The four theoretical predictions are confirmed empirically using matched personnel and transaction records and employee survey data in a large Japanese auto sales company.
