Communicating Subjective Evaluations

Should principals explain and justify their evaluations? Suppose the principal's evaluation is private information, but she can provide justication by sending a costly cheap-talk message. If she does not provide justication, her message space is restricted, but the message is costless. I show that the principal justies her evaluation to the agent if the evaluation indicates bad performance. The justication assures the agent that the principal has not distorted the evaluation downwards. In equilibrium, the wage increases in the agent's performance, when the principal justies her evaluation. For good performance, however, the principal pays a constant high wage without justication.