Supply- and Demand-Side Effects in Performance Appraisals: The Role of Gender and Race

Performance reviews in firms are common but controversial. Managers’ subjective appraisals of their employees’ performance and employees’ self-evaluations might be affected by demographic characteristics, interact with each other as self-evaluations are typically shared with managers before they decide (“anchoring”), and these supply-side and demand-side dynamics may contribute to gender or race differences in performance ratings. Analyzing the data of a multi-national financial services firm, we find that supply-side effects were mostly driven by gender: women (particularly, women of color) gave themselves lower self-ratings. Demand-side effects were shaped by gender and race: holding self-evaluations constant, managers lowered the ratings of female and White employees less, reversing the gender gap in ratings induced by the supply side for Whites but introducing a race gap. The race-based demand-side effects were particularly pronounced in the US, negatively affecting Black, Asian and Latinx employees. Counterfactual simulations suggest that 22-28% of Black employees’ ratings would have to be increased for this race gap to disappear. Finally, we evaluate a potential intervention. In 2016, a quasi-exogenous shock led to self-evaluations not being shared with managers before they appraised employees. While this disruption of supply-side influences led to “de-anchoring” with lower average manager ratings, it generally did not change any gender or race dynamics, as these were mostly shaped by demand-side factors. A possible exception were employees of color hired in 2016: when managers were not anchored by self-ratings (and were unaffected by previous years), the race gap disappeared for women (but not for men) of color.