To Tell or Not To Tell : The Incentive Effects of Disclosing Employer Assessments

Should employers disclose their assessments of their employees? Popular managerial advice suggests that telling employees that they are assessed to have high potential leads to greater effort and engagement, boosting firm profits. However, some employers still choose to withhold employee assessments. What explains this paradoxical observation? We show that disclosing a positive assessment to an employee increases his incentive to appear successful. Success can be achieved either by working harder or by misreporting. If the internal control system is sufficiently weak, the employee excessively substitutes misreporting for effort, thereby decreasing firm profits. Consequently, employers withhold assessments