Wednesday 16 January 2013

Do not judge, or you too will be judged...(the performance rating conundrum!)

I must admit I had some trepidation writing on performance management and appraisal systems that most companies implement to measure and then stack-rank (comparative to) their employee’s perceived performance. Nor have I done myself any favour by titling this from a verse (Mathew 7:1) of the Holy Bible, which is dedicated to outlining how one’s own actions and character may end up facing the same pronouncements that one makes upon others.

My sense of trepidation stems from my role as a Senior executive in an organisation where I am expected to subscribe to my organisation’s performance management system, which is designed to provide an assessment of an individual employee’s performance and then undertake comparative standing against an employee’s peers. In simple terms, can I be seen to be out of sync with what is expected of me via the employee-employer construct that I am governed under? Anyway, let me not be held back by this concern and attempt to outline the point I am trying to make.

A performance management exercise is typically a year-end ritual that leads to a vast majority being labelled as “average performers” (or something similar) and the inverse of this means that there is minority labelled as “above average performers” (i.e. have done “better” than their peers).

I am not the first or the last to write about performance reviews or why they should be changed or even just done away with. I support performance measurement where it aims to clarify expectations and build trust with an employee. However, the challenge is that a performance review is usually done to time or coincide with the annual remuneration cycle, which is subservient to a rating based on a performance assessment/appraisal.

For me the measurement of performance is a dynamic process whose sole purpose should not be to spring unexpected findings on an employee. Do you really need to spend a once a year opportunity on springing surprises when you should be talking to an employee through-out the year on performance and focus? (not enough managers do this year long is a critical point to note!). The agenda should be to discuss the performance and also discuss how negative behaviour or actions have been addressed through-out the year! This 'annual pilgrimage' can also allow for setting growth objectives for the individual but due to its linkage to remuneration loses its relevance and impact. An employee knows that his performance against peers will determine his increase as the system will enforce an acknowledgement of the variation in compensation that will arise due to assessment of 'different' levels of achievement. An average rating should deserve an average increase right? However, it is my instinct that in the end the average differential in income over time between an average employee and an above average rated employee is not driven by monetary increases but largely by promotions. And honestly, a promotion is not necessarily driven by a rating only (sometimes other considerations such as retention or fit or potential come up) though some line and HR managers would disagree with me. So in the end if there is no monetary differential being enforced (except for promotions) then is it not easy to focus our energy on the identification of individuals for promotion purposes. I strongly believe that a pay increase is different from a promotion. A promotion denotes a positive movement and is a better employee retention strategy. 

When employees know that their performance and its assessment will determine their annual increase or bonus then they prepare accordingly. In my own experience those employees who are on 'thin ice' tend to come better prepared as their objective is to convince their manager that they have done far more than they actually have. This makes this into a 'marketing review' rather than a performance review. 

I have also come across the inherent bias or world-view that each manager brings to the table. If you don’t believe me then just notice how sometimes even two managers cannot agree on an individual’s rating. Clearly one has to wonder how a process works where individual bias and conformity to the manager can become the one subjective criterion that can derail the performance measurement/appraisal process. I am also concerned about ratings as they are reactive rather than proactive and frankly usually end up being more of a control (and reward) mechanism. I also have had the privilege of a past manager rating me on one variable -- loyalty to him! That rating made me more disloyal i.e. the complete opposite of the result expected.

On another point, the value of a role/job is dependent on what the market value of a job is and not related to what the competence of the person is in filling it (Price "spaces, not faces"). Now add to this another important challenge. In one year a person gets a low rating and his salary is then increased lower than average (or commensurate to his rating compared to his peers). This means that he or she is now awkwardly placed against the market value of the job. Now the person reacts to the rating and manages to improve performance vs. the peer group. Now we have an interesting conundrum. A manager will attempt to correct the perceived 'injustice' of the past lower rating as the person is off the pace of the market value of the job (due to the earlier average rating having been remunerated with an average increase and because most companies operate on pay-bands or ranges for specific grades and/or job levels). So there is no guarantee that erratic performance over time (i.e. sometimes up and sometimes down) will actually 'hurt' the employee.

A performance management (“rank and yank”) system works much better where the task and job complexity is critical to the role and/or position of the person being rated and related to direct contribution to revenue or margin or some direct financial quantifiable metric. My biggest dilemma is when I see organisations stack ranking or attempting peer reviews for personnel at lower grades i.e. those handling mechanical tasks or similar. In such a scenario, identifying outliers for performance purposes and rewarding is counter-productive.

There is a misconception that an organisation works or survives due to performance outliers. The reality is very different. Those 80% of individuals (labelled average and forming the majority) working in an organisation are those that actually keep the organisation functioning. The exact reason for why CEOs are highly remunerated and why we create celebrities out of them forgets the reality that to be a successful 'rock-star' these CEOs also need the support of many others. If I could, then I would read out the following line at every fallen CEO’s eulogy (metaphorically of course!) -- “The majority cannot be called average if there is no chance to off-set the net negative impact that an organisation would suffer by motivating a few at the expense of this majority.”

I do agree that remuneration must be used to reflect a difference in performance but there must be a better way to differentiate performance? I have had critics argue with me that a performance review is not about money or linked to increases. Despite all the focus on ensuring that performance appraisals should happen in a safe and secure environment the same is impossible to address when at the same review the individual is given his rating as well as a reward deemed 'commensurate' to the rating. Interestingly, most performance management reviews happen with the context of it being related to an increase or bonus. To accuse an employee of making the mistake of linking his or her appraisal to an increase is convenient but is still the reality. Most surveys that argue that pay is not important seem to miss out on the simple caveat that 'pay is not important as long as all other things are equal,' which never happens as the other variables in the equation have an impact that drives pay high on the individual’s agenda during a review. [”People are intrinsically motivated to perform well when the work is meaningful. Pay is not a motivator but can be a powerful demotivator when it is inequitable”].
Nonetheless, I have found it difficult to link individual performance and organisational performance especially at a time when organisational performance (profitability) is under pressure and where performance evaluation will not correspond to a logical means to reward due to limited resources available for rewarding performance. Current reward systems work both ways but at times of constraints the evaluation procedure gets polluted with extraneous considerations due to the scarcity of resources. This is when managers start making excuses for low increases rather than link a low increase back to low performance (which was tenuous to do in the first instance in any case!).

There are also many who argue that a performance evaluation and appraisal system needs to be formal and documented as it would survive legal interrogation if needed. However, the co-relation between an average rater and what is captured in the average performance evaluation is typically weak (Coens & Jenkins) so even that argument seeking to hide behind legal protection seems designed to fail.

So how can I possibly close such a problematic write-up without providing some closing comments on what might work? I honestly believe in delinking increases with ratings. Rather use ratings as a means to guide promotions and bonuses. I also believe that we have a better chance of making performance management work if manager-as-coach became the norm and not the aberration in the performance evaluation and appraisal universe. I had written about my own experience as manager-as-coach and how it helped me develop leadership skills. That process has a far better chance of delivering reviews that are meaningful and designed for growth rather than designed for justifying remunerative efforts.

What do you think?


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