Subjective evaluation of performance through individual evaluation interview: theory and empirical evidence from France

Individual evaluation interviews have become a widespread practice. 52 % of employees in French manufacturing firms over 50 employees declared an annual individual evaluation interview in 1997. However whereas the problem of constructing an optimal contract with subjective evaluation (which is defined simply as a signal in most papers) receives a large attention, firm-level evaluation interviews are strikingly left aside from economic analysis. This paper aims at identifying the underlying logics of individual evaluation interviews in the case of individual production and of team production. Especially, it aims at analyzing the relationships between effort, wage distribution within the firms and individual evaluation interviews. From a theoretical standpoint, three papers by Alchian and Demsetz (1972), by Che and Yoo (2001) and by MacLeod (2003) are closely related to our paper and from an empirical point of view, a recent paper by Engellandt and Riphahn (2004). We test in our paper four predictions. First, evaluation interviews have a positive impact on effort. Second, evaluation interviews increase the effort through two effects: the classical incentive effect and also a high selection effect. Third, evaluation interviews are associated with positive beliefs regarding wage and work recognition. Finally, evaluation interviews are associated with monetary gains for employees. These predictions are tested using a matched employer/employee survey on Computerization and Organizational Change (survey «Changements Organisationnels et Informatisation», C.O.I.), conducted in 1997 over a sample of about 4 000 firms and 9 000 employees.