Does relative performance evaluation affect employee mental well-being?

By Jovina Ang

SMU Office of Research – Since the onset of COVID-19, employee mental well-being has become a critical issue across the world.

In Singapore, the prevalence of poor mental health has increased from 13.4 percent in 2020 to 17 percent in 2022.

Increased workload, job insecurity, isolation due to remote and hybrid work, work-life imbalance and high stress levels are the key factors affecting employee mental well-being.

“The issue of mental well-being simply cannot be ignored as there is a direct correlation between it and productivity,” SMU Associate Professor of Accounting Holly Yang told the Office of Research.

“Employee mental well-being has a direct impact on organisational metrics such as employee engagement and employee satisfaction. A recent Gallup survey showed that highly engaged and satisfied employees contribute to 18 percent in productivity, 23 percent in profitability and 81 percent in absenteeism,” she continued.

“Other than creating a work environment that fosters high employee engagement and employee satisfaction, organisations also need to pay attention to psychological safety, which essentially is a shared belief that drives employees to take on interpersonal risks, to speak up, to disagree openly, to surface concerns without fear of negative repercussions or pressure to sugarcoat bad news,” she continued.

“We also believe that relative performance evaluation (RPE) is another factor that affects employee mental well-being,” she added.

Organisations have been employing RPE or stack ranking as it is known in the human resources community to identify and reward high-performing employees, foster healthy competition, and align employees’ efforts with organisational goals.

This performance evaluation tool became popular since former General Electric CEO Jack Welch pioneered it in the 1980s. Multinationals such as Amazon still use it to measure performance.

That said, RPE can negatively impact employee mental well-being.

Factors such as unhealthy competition, subjectivity, unfairness, and a lack of social support can create a work environment that is pro-competition rather than pro-collaboration.

The research

A four-person research team consisting of Professor Yang was recently awarded a Ministry of Education Academic Research Funding (AcRF) Tier 2 grant to conduct research on the topic. Her collaborators are SMU’s Associate Professor Young Jun Cho and Assistant Professor Jung Bae Kim, and Associate Professor Nick Seybert from the University of Maryland.

Research objectives

The objectives of the research are four-fold:

• Explore the relationship between RPE and employee mental well-being;

• Identify the key factors within RPE systems that influence employee mental well-being;

• Evaluate the role of supportive organisational practices and interventions in mitigating the negative effects of RPE on employee mental well-being;

• Provide recommendations for organisations to adopt healthier performance evaluation systems for promoting employee mental well-being while attaining the desired organisational key performance indicators.

Research methodology

The methodology of the research involves conducting a field experiment with 200 participants from 10 Singaporean start-ups. The participants will be randomly assigned to a treatment group and a control group. Participants in the treatment group will be informed of their relative performance each week, while those in the control group will not.

A key feature of the research includes using an app called Mind Fitness or MindFi to measure employee mental well-being on a weekly basis. On one hand, the app can provide guided self-care programmes based on the user's daily steps, sleep, mood, breathing and heart rates. It can also match users with coaches and therapists based on the user’s psychometric profile.

On the other hand, the app can anonymise and aggregate employee data to generate team-level analytics reports for the company's human resources department to take the appropriate actions to address any well-being issue.

Even though the app has been used by over 35 companies, there does not exist any empirical evidence that shows the impact of RPE on employee mental well-being.

This research is one of the world’s first field experiments to obtain first-hand information on the relationship between RPE and employee mental well-being. Professor Yang hopes the research can play a key role in providing recommendations for solving the pressing issue of employee mental well-being.

Back to Research@SMU February 2024 Issue