The role of performance appraisals in motivating employees

Workers' rewards and career perspectives often depend on how their supervisors perceive their performance. However, evaluating a worker's performance is often difficult. We develop a model in which a worker is uncertain about his own performance and about his supervisor's ability to assess him. The supervisor gives the worker a performance appraisal aiming to affect both the worker's self-perception and his own credibility in assessing the performance. We examine how performance appraisals affect the worker's future performance. Our model's predictions are consistent with empirical findings. Supervisors give, on average, too positive appraisals, and both positive and negative feedback can (de)motivate workers.