The research presented in this paper shows that the norm-referenced grades assigned by teachers are significantly related to the students' self concept assessments and mental health status. Data from a sample of 318 fifth grade students of lower, middle, and upper socio-economic classes indicate that some of the influence which norm-referenced grades can have on students' psychological development can be beneficial, but these grades can also subject students' self concepts and mental health to unnecessary risk. Employing criterion referenced evaluation procedures and mastery learning strategies may reduce this risk, the author believes. Multiple regression analysis was used to investigate the relationships among (1) predictor variables: grades and achievement test performance; (2) criterion variables: twelve indices of self concept and five mental health scores; and (3) control variables: IQ, social class, sex, age, level of aspiration, duration of attendance at present school, and other measures of classroom evaluation. The author suggests that modifying evaluation methods can provide an important avenue for dealing with the extensive personality problems found in our schools. (Author/SES)