Managers need to eliminate de-motivation in the work systems not try and find bonus schemes to motivate behavior. Eliminating de-motivation is often much more work. You can’t just get some money from the bonus pool and start giving it away. You have to manage. But if you are a manager you shouldn’t be afraid to actually manage the system and make it better.
The Trouble with Performance Reviews [the broken link was removed] by Jeffrey Pfeffer
Managers don’t like giving appraisals, and employees don’t like getting them. Perhaps they’re not liked because both parties suspect what the evidence has proved for decades: Traditional performance appraisals don’t work. But as my colleague and fellow Stanford professor Bob Sutton and I pointed out in our book, Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management, belief and conventional wisdom often trump the facts. And when it comes to performance evaluations, companies ranging from HR consulting firms to providers of software that automate the process have a big stake in their continued use.
The most basic problem is that performance appraisals often don’t accurately assess performance. More than two decades ago research done by professor David Schoorman showed that whether or not the supervisor had hired or inherited her employees was a better predictor of evaluation results than actual job performance.
Possibly the biggest issue, however, is that performance appraisals focus managers’ attention on precisely the wrong thing: individual people. As W. Edwards Deming, the father of the quality movement, taught a long time ago, company performance often results more from variations in systems than from the individuals doing the work. One of the reasons Toyota Motor has been so successful for decades—even as leaders have come and gone and the automobile market has changed—is that the fundamentals of the Toyota management system, which emphasizes quality, continuous improvement, and standardized tasks, provide the advantage. By focusing on the presumed deficiencies or strengths of people, individual performance reviews divert attention from the important task of eliminating the systemic causes, such as inferior technology, behind poor performance.
Various techniques are used to ensure a quality (no red bead) product. There are quality control inspectors, feedback to the workers, merit pay for superior performance, performance appraisals, procedure compliance, posters and quality programs. The foreman, quality control, and the workers all put forth their best efforts to produce a quality product. The experiment allows the demonstration of the effectiveness (or ineffectiveness) of the various methods.
To make my case, I offer seven reasons why I find performance reviews ill-advised and bogus.
Inevitably reviews are political and subjective, and create schisms in boss-employee relationships. The link between pay and performance is tenuous at best. And the notion of objectivity is absurd; people who switch jobs often get much different evaluations from their new bosses.
Raises are then determined by the boss, and the boss’s boss, largely as a result of the marketplace or the budget. The performance review is simply the place where the boss comes up with a story to justify the predetermined pay.
Managers can talk until they are blue in the face about the importance of positive team play at every level of the organization, but the team play that’s most critical to ensuring that an organization runs effectively is the one-on-one relationship between a boss and each of his or her subordinates. The performance review undermines that relationship.
More and more people are willing to state the frustration with the performance appraisal process. Some have been willing to take the logical step of eliminating that which causes problems but many still don’t think elimination of performance appraisals is acceptable. Performance Reviews: Many Need Improvement
According to one study by Watson Wyatt, the human resources consulting firm, only 3 in 10 employees believed that their companies’ performance review system actually improved performance. In another study by the firm, almost half of the employers surveyed thought that their managers were at best only slightly effective in helping underperforming employees to improve.
Mary Jenkins, a co-author of Abolishing Performance Appraisals: Why They Backfire and What to Do Instead advocates a system in which employees themselves seek feedback from people they work with or who have skills they seek, then review a self-designed growth plan with their supervisor. She is using this approach at Genesys Health System in Michigan, where she is vice president for organizational learning and development.
When the Wei dynasty in China rated the performance of its household members in the third century A.D., the philosopher Sin Yu noted that “an imperial rater of nine grades seldom rates men according to their merits, but always according to his likes and dislikes.”
I would go with the elimination of performance appraisals, myself (see related links below for details). I strongly suggest chapter 9 (Performance Without Appraisal) of The Leader’s Handbook, by Peter Scholtes, for those thinking about this topic.
In software development, it is very hard to establish the effects of individual contributions and good teamwork is key to the project. Most individual compensation schemes, according to the presentation, absorb vast amounts of management time and resources and leave nobody happy, but team compensation strategies are not easy to implement. Mary presented results from HP’s experiments during the beginning of the nineties, when HP allowed 13 local organisations to experiment with team-incentive plans. All programs were discontinued by the 4th year, due to constant changes to the plans which were needed to distribute available money among the teams and a wide dissatisfaction with the plans by employees.
Use profit sharing schemes instead of bonuses to tie people to the organisation goals.
keep in mind the norm of reciprocity — if people feel that they are being treated generously, they will reciprocate it with increased discretionary effort.
Pay for performance is a bad investment [the broken link was removed] by Pete Waters
“Teacher pay set by the results” was the headline of a (Baltimore) Sun article I read the other day which suggested that “performance-based bonuses (were) cropping up across Maryland” in our state education system. Bonuses would be given to teachers and principals that were successful in raising test scores of students.
One of the many shortcomings of the program was that job duties were often not well defined, and favoritism was difficult for most supervisors to avoid.
Deming specifically considered “performance appraisals, merit ratings and annual reviews” as one category under the heading of Seven Deadly Diseases of Management. He thought that the notion of “teamwork” was destroyed by these evaluations. Deming further believed that the morale of the organization suffered because of these individual evaluations.
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):
Hire good people – one of the most critical decisions we all make.
Train and educate them – even if they come from the best universities and are at the top of their class.
Coach them, constantly, don’t wait for an annual appraisal to correct an issue or behavior.
It is the system that must be improved to ensure people work to their potential.
Recognize your top performers, but money isn’t the best method of recognition, in fact, it can be counterproductive.
Work with your low performers to understand their issues and difficulties; give them support and assistance. If they can’t improve and are truly performance outliers , don’t keep them, they will affect the over system.
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. Continue reading →
The original study that found huge variations in individual programming productivity was conducted in the late 1960s by Sackman, Erikson, and Grant (1968). They studied professional programmers with an average of 7 years’ experience and found that the ratio of initial coding time between the best and worst programmers was about 20 to 1; the ratio of debugging times over 25 to 1; of program size 5 to 1; and of program execution speed about 10 to 1. They found no relationship between a programmer’s amount of experience and code quality or productivity.
In years since the original study, the general finding that “There are order-of-magnitude differences among programmers” has been confirmed by many other studies of professional programmers (Curtis 1981, Mills 1983, DeMarco and Lister 1985, Curtis et al. 1986, Card 1987, Boehm and Papaccio 1988, Valett and McGarry 1989, Boehm et al 2000).
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.
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.
Mary says that there is no valid research showing benefits of performance appraisals. Simply said, “it doesn’t work”. Her biggest complain is that appraisals target individuals (sometimes teams) rather the system itself. She also condemns judgment rather than feedback (system dynamic).
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.