Essays on Weight Allocation across Multiple Tasks

Abstract

This thesis is comprised of two essays on weight allocation in performance evaluation. Since weights significantly affect an agents effort allocation across multiple tasks, understanding how weights are allocated is critical in performance evaluation. The first essay investigates how an agents incentive affects weight allocation decisions across multiple tasks. Agents attempt to induce the contract terms to be favorable to themselves. Weight is one of significant contract terms that affect agents reward

thus, agents have incentive to influence the weights to be allocated in their favor. Past performance provides a signal for future performance

tasks with better prior performance have a higher probability of generating higher outcomes in the future. Hence, agents likely induce rater more weights to be placed on tasks with higher prior performance than on tasks with lower prior performance. Using valuable performance evaluation data for the Korean Stated-Owned Enterprises (SOEs), I find results consistent with my prediction and a positive relationship between prior performance and weights is only observed in objective measures. In addition, I find that the positive relationship is more pronounced when agents incentives are salient

when a CEO has post career concern and when a CEO has less probability of being dismissed. Prior studies mainly focus on how to allocate weights to enhance effectiveness of performance evaluation or whether raters cognitive limitation distorts weight allocation. However, I provide new insight that agents incentives to have favorable contract terms distort weight allocation. The second essay examines how the relative weights of subjective and objective measures are determined. Subjective measures are incorporated in performance evaluation in order to complement objective measures. Hence, the relative weight of subjective measures may be greater when objective measures inadequately account for agents contribution to an organization. My empirical finding show that the relative weight of subjective measures is greater in long-term oriented tasks than in short-term oriented tasks. The long-term oriented tasks need agents comprehensive and adaptive behavior that cannot be adequately captured by objective measures

thus, the weight of subjective measures relative to objective measures increases with tasks long-term orientation. In addition, I find that the relative weight of subjective measures increases as the number of objective measures decreases. The more number of objective measures, the more information about multidimensional agents actions

thus, the negative relation between the relative weight of subjective measures and the number of objective measures provides evidence that the relative weights of subjective and objective measures are determined in a way to enhance effectiveness of the performance evaluation system.