Can Managers Appraise Performance Too Often?

Abstract

This paper discusses the relationship between the frequency of performance appraisal and escalation of commitment to a losing course of action. It is commonly thought that the more often employees are appraised, the more effective they become. Contrary to this view, we discuss conditions that cause employees, particularly project managers responsible for capital budgeting decisions, to stick with decisions that have been shown to result in negative consequences for the company. We report the results of a set of work place simulations where the frequency of performance appraisal affected the length of commitment to losing courses of action as well as the managers perceptions about their personal benefits resulting from those decisions. The results suggest that frequent performance appraisals during the course of long-term projects may divert managers from the profit maximization goal sought by the owners of the firm.