After the 1992 Barcelona Summer Olympics, researchers from Cornell University studied the facial expressions of the athletes who won gold, silver, and bronze medals. They analyzed footage of ceremonies and television interviews and found that gold medalists seemed the happiest.

What a shock, right?

But they also noticed something curious: The bronze medalists seemed much happier than the silver medalists.

How could people who finished third be happier than people who finished second?

The answer lies in understanding what psychologists call "counterfactual thinking"--or what the rest of us call "what if?"

Counterfactual thinking occurs when we imagine how things might have been different. When something happens--especially something significant--we think about alternatives to our current reality to understand how we ended up where we are. Sometimes we feel good about where we are compared to where we could be. Sometimes we don't.

Either way, we do a lot of comparing: Between where we are and where we could have been--both positively and negatively.

Take the silver medalists: They used an upper counterfactual, which means they judged themselves in comparison to the gold medalists. As a result their, "what if?" questions fell along the lines of, "What if I had trained harder... I might have won a gold medal," or, "What if I had just gotten a little better start... I could have won." Since they finished second--just one spot away from first--they dwell on what they could have done differently in order to win the gold.

Now take the bronze medalists. They used a downward counterfactual, which means they judged themselves in comparison to all of the people who didn't win any medal. By comparing themselves to what could have been--no medal at all--as a result the bronze medalists were thrilled just to be standing on the podium.

It happens at work, too

According to James Adonis, an expert on employee engagement and co-founder and Managing Director of Team Leaders, an Australian firm that provides workshops, individual training, and other resources designed to develop outstanding front-line leaders, counterfactuals occur in the workplace as well--especially during performance appraisals.

"Research shows the majority of performance appraisals have zero impact on performance," James says. "One reason for this is that appraisals are often laborious. When both employees and managers dread them, they can't ever be effective. Another reason can be attributed to counterfactuals."

For example, when you give employees a less than perfect rating, it's natural for them to think about what could have been. If they resort to a downward counterfactual, that's great, because the result is a bunch of happy workers.

But if any of them fall into the upper counterfactual category, you might have to deal with emotional reactions such as anger, resentment, tears, and grief.

Here's how to minimize upper counterfactuals before an appraisal:

  • No surprises. Hold enough feedback sessions in the months leading up to the appraisal so that employees can predict precisely what they'll hear from you. Performance evaluations should never contain surprises.
  • Be clear. Ensure employees totally understand how their performance will be measured.  It is terribly unfair to enforce an unpredictable bell curve rating system.
  • Ask questions. Have honest conversations to explore what employees are expecting. Then you can correct misperceptions in advance--or at the very least be prepared for them.

And here's how to deal with upper counterfactuals when they happen during an appraisal:

  • Don't argue or debate. Let employees vent. Sometimes all they want is to be heard.
  • Paraphrase what they say to show you listened.
  • Ask further questions to learn about the underlying reasons for how they feel. The more you know, the better you can respond--and sometimes empathize.
  • If necessary, refer to previous discussions when you talked about performance issues.
  • Be prepared to concede that maybe--just maybe--your rating was wrong. (It does happen.)

Be fair, be honest, be straightforward... and also consider the impact of the appraisal on the employee.

When you do, your employees won't need to be first to feel like they're winners.