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posts relating to performance without appraisal...
Recommended posts: Performance without Appraisal - Performance Without Appraisal (Mini-microsoft) - Righter Performance Appraisal
Related: Dr. Deming on performance appraisal
Gojko Adzic provides a nice post on Mary Poppendieck’s presentation at Agile 2008 on bonus, compensation and motivation: Paying programmers: are bonuses bad and what to do about it?
As usually Mary Poppendieck provides good advice: Mary Poppendieck webcast on Leadership in Software Development. The idea that bonuses are bad management is one of the more difficult management improvement ideas for people to accept. See related posts for much more on the problems with them and what to do instead.
Related: Interview with Mary Poppendieck - The Defect Black Market - Deming on the problems with targets or goals - Incentive Programs are Ineffective - Problems with Bonuses - Measuring and Managing Performance in Organizations
Pay for performance is a bad investment by Pete Waters
As Deming said (page 102 of Out of the Crisis): “The idea of a merit rating is alluring. The sound of the words captivates the imagination: pay for what you get; get what you pay for; motivate people to do their best, for their own good. The effect is exactly the opposite of what the words promise.” Understanding enough about managing organizations to know why it doesn’t work is not easy - which I think is a big reason why people go for the nice sounding, but flawed idea, I think. Read our posts on performance appraisals and the works we reference to learn.
Guest post by Ron Kingen (originally posted to the Deming Electronic Network)
Several weeks ago someone in the DEN list ask what did Dr. Deming recommend about this issue, well I ask that very question of Dr. Deming back in the 80’s when I had the good fortune to work with him. I had expressed my concern to Dr. Deming about several of his fourteen points that I either didn’t understand completely or did not fit with my experience and/or education. Dr. Deming suggested we talk about it over dinner – during the subsequent dinner discussion Dr. Deming made several points relative to performance improvement (not appraisal):
The advice seemed valid, but I told him my company insisted we do performance appraisals. He laughed, he suggested I change the system; but Dr. Deming knew I worked for General Motors and that wouldn’t be easy. So he recommended I become a rebel and change my part of the system; which I did try. At the time I worked for one of the most progressive divisions within GM and was fortunate to work with many talented GM people and several well know and recognized experts, but I was convinced the best system change option was to leave GM.
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I think these orders of magnitude are not present in between people in many jobs. And I think people’s ability to correctly access who are orders of magnitude better is often faulty. But my experience leads me to believe the difference between exceptional software developers and average (not even below average) is very high. High enough that large increases in pay (say tripling would be sensible). Also accommodating their desires is sensible: freedom from dealing with pointy haired bosses and eliminating other such de-motivators.
While salespeople seen as successful can often be rewarded very well, exceptional software developers rarely are. Most managers don’t seem to be able to grasp that software development is a rare field where such orders of magnitude differences are somewhat common (not one in a million, maybe one in a thousand for a random guess). There are other fields where this is true but most for most fields I do not think this is the case.
In many fields interruptions are costly (and multi-taking is wasteful). In software development those interruptions are often much more costly than in other fields. Peopleware: Productive Projects and Teams is an excellent book on managing software development.
Related: People are Our Most Important Asset - Joy in Software Development - Hiring the Right People - Performance without Appraisal - Measuring and Managing Performance in Organizations
I like to continue to push for some things that might not seem achievable to many. It is too easy to accept that things have to stay the way they are. Several of Dr. Deming’s list of Seven Deadly Management Diseases are now accepted as serious problems by most. Performance appraisal is a strange disease: most people agree performance appraisals are not effective and indeed are harmful. Yet, most still don’t think anything can be done about it. But we can, and should, take steps to improve. Just don’t do it.
Managers are from Mars, Performance Appraisals from Venus discusses Mary Poppendieck’s recent presentation - Appraisals and Compensation: The Elephant in the Room
Mary went over the false assumptions behind individual pay-for-performance (money, motivation, individual assessment), and the negative effects they have on the system.
She finished by a case study done by HP across 13 organizations over a year 4 year period where each division implemented a different type of incentive plan. The results are just mind boggling. They all failed and got canceled.
I strongly suggest chapter 9 (Performance Without Appraisal) of The Leader’s Handbook, by Peter Scholtes, for those thinking about this topic.
Related: Righter Performance Appraisal - Problems Caused by Performance Appraisal - Performance Without Appraisal - Find the Root Cause Instead of the Person to Blame
Appraisals are a waste of Time
The poll of nearly 3,000 workers also found a quarter who had had an appraisal suspected their managers simply saw the annual review as a “tick-box” exercise. And a fifth complained managers rarely prepared for the meeting in advance – a key bit of advice you’ll always get in appraisal training – and did not even think about it until they were actually sat down in the room.
That is just a start on the problems with annual rating of people. On page 101 of Out of the Crisis Dr. W. Edwards Deming states the following as one of the seven deadly diseases:
Related: Dr. Deming on performance appraisal - Continuous, Constructive Feedback - Performance without Appraisal - Righter Performance Appraisal - The Leader’s Handbook
I am not convinced of the premise of The new war for talent: that there will be a great shortage of talent soon. But the article makes some interesting points.
I think the main thing to do is to respect employees (and have that visible in the management decisions made in the organization). Stopping the demotivation would be a big step for many organizations. And to manage your organization with the understanding that the organization’s purpose should be to benefit the various stakeholders (shareholders, customer… and employees).
Related: People are Our Most Important Asset - How to Improve - What is Wrong with MBA’s - soul crushing work (comic)
Targets can seriously damage your health by Simon Caulkin
To focus on the individual parts and ignore the whole always makes things function worse at a system-wide level. Thus, to meet financial and waiting-time targets, Maidstone drove up bed occupancy rates. But that compromised cleaning. At the system-wide level, the cost was making the hospital more dangerous to patients than staying at home.
And if enough pressure is applied, people will meet targets - even if they destroy the organisation in doing so. As quality guru W Edwards Deming put it: ‘What do “targets” accomplish? Nothing. Wrong: their accomplishment is negative.’
These are systemic faults, which is why such regimes can’t be refined by setting ‘better’ or fewer targets. Deming added: ‘Management by numerical goal is an attempt to manage without knowledge of what to do’. This is what makes it so attractive to bad managers. Unfortunately, in absolving them from the effort of thought, it is also junk management
Great insight on the problem of targets. Brian Joiner provides another reason why targets are harmful: there are “3 ways to improve the figures: distort the data, distort the system and improve the system. Improving the system is the most difficult.” And so most often targets results in distortion of the data (faulty data) or distortion of the system (meet target by shifting resources and effort from other parts of the system). Both of those actions are harmful to the system.
Related: Be Careful What You Measure - Measuring and Managing Performance in Organizations - Targets Distorting the System
Comment on: Fun With Statistics, CEO Life Edition
Another useful comparison would be with Japan where top decisions tend to be much more based upon consensus and not as dependent on the American Superstar model.
Wouldn’t being “less and less critical to the long-term success of the organization” make it more and more difficult to justify salaries that would make a King jealous? If the USA CEO’s are less critical why are the USA CEO’s paid the highest (and most unbelievable crazy) amounts? I have thought for years CEO pay in the USA has nothing to do with their “worth,” this seems one more piece of evidence for that belief.
Today, in the USA, CEOs are basically win the lottery when they start and then either win some more and stay or don’t win and are let go. The lottery performance appraisal aspect Deming talked about (rewarding whoever random variation or macro economic and micro economic trends smiled upon during the period). So if a market (housing, oil, steel, investment banking, microchip, hotel…) is booming why give all the CEO’s in that market huge payoffs? What do they have to do with the economic boom in the entire market? Why pay them a lottery sized payout when a boom occurs? Occasionally a CEO may help make decisions that position the company to take advantage of a predicted boom particularly well (such a case could at least trigger a discussion on the worth of that action).
We also have to recalibrate Deming’s comments to say regular performance appraisal raffle winners. CEO’s are now actually getting $40,000,000 - lottery sized - annual pay so using the term lottery is a bit misleading for everyone else. The same issue hold though rewarding people for what is often just micro factors similar to the macro factors listed above for CEOs.
Warren Buffett on overpaid CEO’s:
Related: Deming on performance appraisal - Excessive Executive Pay - Obscene CEO Pay - No Excessive Senior Executive Pay at Toyota
The Seven Fatal Flaws of Performance Measurement by Joseph F. Castellano, Saul Young, and Harper A. Roehm
Once the targets are established, most organizations measure the performance of component units by comparing targets to actual performance for certain time periods. Variances from expected results are noted and explanations are required. The popular business press trumpets the efficacy of the above approach, but this methodology has serious flaws. In fact, the design and use of performance measurement systems in most organizations suffer from a number of fatal flaws that can undermine an organization’s ability to use its measurement system to improve processes and make better decisions.
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The proper role of measurements should be seen in the context of helping employees connect with the overall aim of the organization. Management must gather and analyze information that will help employees become better contributors to the firm’s purpose.
The articles does an excellent job of explaining the flaws in how performance measurement is applied (both in Management by Objective (MBO) and performance appraisals).
Related: Performance Without Appraisal - Jeffrey Pfeffer on Evidence-Based Practices - Problems Caused by Performance Appraisal - The Danger of Forgetting the Proxy Nature of Data
Another essay by Paul Graham packed with great thoughts - this one on hiring, colleges, measuring performance of people, etc..
Related: Hiring the Right Workers - Malcolm Gladwell, Synchronicity, College Admissions… - Google and Paul Graham’s Latest Essay - Interviewing and Hiring Programmers - What Business Can Learn from Open Source - Google’s Answer to Filling Jobs Is an Algorithm - Hiring: Silicon Valley Style - Curious Cat Management Improvement Career Connections
Often people have trouble understanding Dr. Deming’s disapproval of arbitrary numerical targets. What he was trying to prevent is what many see every day, such as managing to quarterly earnings targets. There are several problems with numerical goals but in here lets focus on one. The change from managing for what is best for the business to managing to hit a target. Google Profit Trails Analyst Estimates; Shares Slide:
Great statement. And if more people could manage that way, one of the problems with numerical goals would be eliminated. But with so many organizations tying huge bonuses to meeting arbitrary numerical targets you will have a great deal of difficulty getting managers to hire 3 extra people this quarter, who will help the business, but will ruin their chance at a bonus. Or even if they just take a hit on their performance appraisal compared to the other managers that meet the headcount target - even if it meant turning away talent the organization could have benefited from greatly - and then the manager that missed their target loses out in the next promotion opportunity.
I am happy to own a tiny portion of Google and glad they are making decisions like this. Now just because I think there is a good case to be made for exceeding the targets that doesn’t mean that hiring more people is necessarily good. It is perfectly possible Google is hiring too many people and making a bad prediction about how these people will benefit Google in the long run. I am just saying I strongly support not tying yourself to short term numerical targets, if you predict a better decision requires taking actions that will cause the target to be missed.
Google increased profit by 28%, from the second quarter last year, to $925 million (and down from $1.0 billion in the first quarter of 2007). Lest you think personnel can’t really cost Google that much can it, just the stock based compensation in the second quarter reduced earning by $242 million in the quarter (an “expense” that wasn’t reported just a few years ago). Google had 13,786 full-time employees as of June 30, 2007 (up 1,548 in the quarter) - so that is over $17,500 per full time employee. If anyone at Google wants to talk I am open to considering an employment offer.
Deep Thinkers Need Not Apply: How To Get Ahead In the Modern Business World:
Something to be very careful of in managing people. I find that who says something is most often more important in predicting how people will react than what is said. As I have tested this myself I have learned how biased people are by who is talking and have taken care to try and correct such judgments that I make (I know I don’t do it all the time but I try to especially for important things).
I haven’t managed to have that reaction yet 
Ok, maybe I am not suppose to wish that people would use poor reasoning to listen to me but I am in favor of any reason that makes them listen 
Related: Management is Prediction - Problems Caused by Performance Appraisal - posts related to psychology - Curious Cat Management Improvement Jobs
One of the beliefs I try and get the organizations I work for to adopt is to truly value excellent people. The costs are challenges of hiring great people, to me, makes it critical to do what you can to keep your exceptional people. I probably haven’t written about this because it can conflict with my advice against performance appraisals. I do actually believe it is possible to know certain people are great and contribute greatly to the success of your organization. I also believe many (a majority) organizations do such a bad job of identifying those people they shouldn’t even try. But if you can identify some people that seem to be positive special causes of success there is a good argument for making sure they are happy.
I don’t believe you should try to pay these special employees fairly. Overpay them. I would much rather waste (10-20% on extra pay) than pay them fairly and make it easier for them to switch to another job. Talk to them and make sure they are doing what they want and making the progress they want. I find (I don’t have enough data to know if this is generally true) that the best people complain the least and so you need to make extra efforts to find out what they might like to see improved.
Don’t focus all of your energy on putting out fires and expect those that keep their areas of responsibility in decent shape without your intervention to just cope on their own. Since many managers adopt this “only dealing with the squeaky wheel” strategy (without saying that is what they do, of course), force yourself to spend time coaching, learning, helping… the most successful - as well as others. I want to have employees delighted (all of them ideally, but at least those that are most critical). As Deming said it is easy for competitors to take away satisfied customers - it is not easy for a competitor to take away delighted customers. The same holds for employees.
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I continue to tilt at the robber barron CEO pay packages. Hopefully, at some point, the people approving these obscene pay packages can be shamed into stopping or replaced by people with some sense of decency. I was taught in the days of robber barrons the business world was seen as an amoral place (morality did not belong in this area of human endeavor) but that over time society decided that in fact morality did apply there. It is hard to reconcile that with the behavior of CEOs and board approving ludicrous pay packages. See previous post on the purpose of organizations. Half of S&P 500 CEOs Topped $8.3 Million
“Why is it that a CEO gets compensated in such a discombobulating fashion when the average worker gets a paycheck and can tell immediately what it’s about? … If you’re an investor and you get your (proxy) statement and it just goes on for pages and pages of the different methods used to pay the CEO, at some point you have to ask yourself why. ‘Why don’t I get all this?’”
Very good question. I would say they are intentionally trying and confuse the issue. Even as they spout defenses for such unjustifiably pay packages they know the pay is not defensible and so try to confuse the issue with byzantine explanations. Lets look at the CEO pay versus total earnings for several companies:
| Company | CEO | Pay | Earnings | CEO % | |
|---|---|---|---|---|---|
| Yahoo! | Terry Semel | $71,660,216 | $751,000,000 |
| 9.5% |
| XTO Energy | Bob Simpson | $59,489,924 | $1,860,000,000 |
| 3.2% |
| Goldman Sachs | Lloyd Blankfein | $54,300,000 | $9,537,000,000 |
| .6% |
| Occidental Petroleum | Ray Irani | $52,822,584 | $4,182,000,000 |
| 1.4% |
| Merrill Lynch | E. Stanley O’Neal | $46,375,347 | $7,499,000,000 |
| .6% |
| Danaher | H. Lawrence Culp, Jr. | $46,215,671 | $1,122,000,000 |
| 4.1% |
| Countrywide Financial | Angelo Mozilo | $42,994,306 | $2,674,000,000 |
| 1.6% |
| Morgan Stanley | John Mack | $41,400,000 | $7,472,000,000 |
| .6% |
| Ford | Alan Mulally | $39,128,100 | $1,540,000 |
| 2540.7% |
| Apollo Group | Todd Nelson | $32,626,442 | $415,000,000 |
| 7.9% |
| AT&T | Edward Whitacre | $31,765,761 | $7,356,000,000 |
| 4.3% |
Data via: Best-paid CEOS (only those with fiscal years ending after December 15th - more pay data) - for 2006 according to an Associated Press analysis that covered nearly 400 of the nation’s 500 biggest public companies and Google Finance. I realize this chart could be improved by spending more time (especially looking out over several years for both pay and earnings…) but this is what I could do relatively quickly.
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Employee performance: Continuous, constructive feedback yields results:
Include coaching. Annual reviews often are used as the only performance communication tool. They give the associate a “grade,” but do they have a well-crafted development section? Do they have a plan for how you are going to partner with them to help them grow? If they do, how often do you visit the plan throughout the year to make sure it’s on track?
Exactly right. As I have discussed I don’t believe in the annual performance rating (Performance Appraisals - Is Good Execution the Solution? - Performance Appraisal Problems…) so I would just skip the grade. The correct strategy, communicate and coach continually. Have defined process that are clear to everyone. Have clear expectations for what people are suppose to do and have methods to make problems visible so they can be addressed.
Related: Performance without Appraisal - posts on performance management - Ritz Carlton and Home Depot - Customer Focus at the Ritz
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Jeffrey Pfeffer Testifies to Congress About Evidence-Based Practices:
Great stuff. Read the entire document. via: Bob Sutton’s Work Matters
Related: Evidence-based Management - Illusions - Optical and Other
Books: The Knowing-Doing Gap by Jeffrey Pfeffer and Robert Sutton - Hard Facts, Dangerous Half-Truths And Total Nonsense: Profiting From Evidence-Based Management by Jeffrey Pfeffer and Robert Sutton
Appraising the Performance Of Performance Appraisals by Harry Goldstein:
According to Jenkins and Coens, all of the above can be done better and far less painfully by untangling these functions and designing a process for each. First, they argue, companies should decouple compensation decisions from feedback about how the employee is doing. The point is that outside, or extrinsic, motivators such as money do not really work for the vast majority of employees.
One company that found that to be true is Brighton, Mich.-based Peaker Services, which rebuilds locomotive diesel engines and does application engineering work for control systems. In the past, Peaker relied on merit raises linked to annual evaluations, according to president Ian Bradbury.
Related: Deming on Management: Performance Appraisal - Righter Performance Appraisal - Performance Appraisal Problems - Eric Christiansen Podcast - Performance Without Appraisal - Performance Appraisal Alternative - So What’s System[s] Thinking by Ian Bradbury (pdf)
Performance review proponents say the way it is done matters most (based on reaction to: Performance appraisals get low marks):
Good execution of performance appraisal is not the solution. More people are realizing that improving how performance appraisal are done is an attempt to do the wrong thing better. If you insist on doing the wrong thing, I suppose you might as well do it better but how about just not doing the wrong thing at all? What should be done? See: Performance Without Appraisal and read chapter 9 of The Leader’s Handbook.
Related: Problems Caused by Performance Appraisal - Deming on Performance Appraisal - Performance Without Appraisal #2 - Performance Appraisal Problems
Top ten tips for preventing innovation give some great ideas many companies are already doing but you may find some your company hasn’t mastered For example:
The performance appraisal systems used now, are a great way to stifle innovation. If you actually want to look at encouraging innovation, see some of our posts on innovation.
Related: Better and Different - Performance Appraisal Problems - Quality and Innovation - Dr. Deming on Performance Appraisal
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