Works councils and performance appraisals

Purpose: We analyze the role of works councils for the use of performance appraisals (PA). We distinguish between the incidence of PA systems as intended by the firm and their actual implementation on the level of the individual employee. Design/methodology/approach: We draw on two complementary data sets. These are the German Linked Personnel Panel (LPP), which combines firm-based information with information provided by several of those employees, and the German Socio-Economic Panel (SOEP), which is a representative longitudinal study of persons living in Germany. Findings: We find that works councils tend to promote rather than restrict PA. Employees working in establishments with a works council are more likely to face a formal PA procedure. Works councils also act as a transmission institution for the actual use of an existing PA system – i.e. among the firms that claim to implement PA for all their employees, the likelihood of their employees actually having regular appraisals is substantially larger when works councils are in place. Moreover, the existence of works councils is positively related particularly to PA systems, which affects bonus payments. Research limitations/implications: We contribute to the understanding of the work of works councils in firms. In more general, we shed light to the relation of industrial relations and human resource management in firms. Practical implications: This result hints at a higher acceptance of PA systems in firms with works councils. It seems likely that the stronger formalization of such systems necessitated by codetermination laws increases the likelihood of supervisors consistently carrying out such appraisals. Originality/value: We are the first who complement the analysis of the existence of HR practices (PA system) with its actual use for employees.