Identifying Talent: An Exploratory Investigation of Explicit Potential Assessment
Posted: 18 Aug 2017
Date Written: August 18, 2017
Abstract
In this study, we examine the effectiveness of a performance management system that explicitly assesses an employee’s potential for the purpose of making informed promotion decisions. We exploit the change in a performance management system that shifts from the implicit identification of high potential employees to the explicit assessment of potential. While performance measures usually enable the firm to evaluate an employee’s past performance, they provide only limited information regarding the employee’s potential to perform in a prospective job that requires a different skill set. Therefore, firms are gradually moving towards the incorporation of explicit potential assessments in their annual performance evaluations to assess the employee’s promotability to a different task environment. Our data access allows us to provide unique exploratory evidence on the effectiveness of a performance management system that adopted the explicit assessment of potential. More specifically, we investigate whether the new potential identification process indeed supports the firm in selecting the right employees by focusing on the performance measures used in promotion decisions and their predictive validity. We find that promotion decisions are less efficient under the new system and we subsequently examine potential explanations for this.
Keywords: talent identification, promotion, performance measurement
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