Definition of relative performance evaluation (RPE)

An evaluation of an individual’s performance that is based on the difference between an

individual’s measurable output and an aggregated amount of the same measurable output

observed in a group of the individual’s peers. The main idea behind relative performance

evaluation is that an individual should not be held responsible for risks and factors beyond the

control of the individual.

Example

An individual would not be held responsible for downturns in the individual’s performance

arising from uncontrollable factors such as natural catastrophes, general economic conditions,

stock market volatility, and government regulation.

Assuming peers are also affected by these same uncontrollable factors, then measuring the net

performance (i.e., the difference between, for example, the individual’s financial outcomes and

the aggregated financial outcome from a group of peers) means that the individual can be

evaluated as having performed well even if there is a weak financial outcome, as long as that

weak financial outcome is better than the corresponding financial outcome from a composite of

the individual’s peer group. [1]

The drawback of RPE is that it can encourage workers to engage in behaviour such as sabotaging

the efforts of co-workers, collusion with co-workers to collectively shirk, and hiring inept co-

workers to work on their teams. Relative performance evaluation contracts are not desirable

when it is difficult to measure worker performance or when it is desirable for teams to work

together.