Although prior studies like these have advanced our understanding of performance
measurement design, they share the limitation of not distinguishing among measures that
are determined objectively and ones that are based on subjective judgment. A key difference
between objective and subjective measures is that the latter are often less accurate and
reliable, and are more open to raters’ biases (Campbell 1990; Fulk et al. 1985; Hawkins
and Hastie 1990; Heneman 1986). Prendergast and Topel (1993), for example, have suggested
that allowing subjective judgment in performance evaluation can reduce employee
motivation. This result is due to the latitude for evaluators to ignore performance measures
that are included in the performance plan, and to use measures that differ from those
originally planned. Moreover, when evaluations are subjective, employees may divert job
effort toward influencing their supervisors’ evaluations (Milgrom 1988; Prendergast 1993;
Prendergast and Topel 1996). Whether limitations like these outweigh the benefits of subjective
measures is an important question.