Multi-rater Performance Evaluations and Incentives

We compare evaluations of employee performance by individuals and groups of supervisors,
analyzing a formal model and running a laboratory experiment. The model predicts that
multi-rater evaluations are more precise than single-rater evaluations if groups rationally
aggregate their signals about employee performance. Our controlled laboratory experiment
confirms this prediction and finds evidence that this can indeed be attributed to accurate
information processing in the group. Moreover, when employee compensation depends on
evaluations, multi-rater evaluations tend to be associated with higher performance.