Yahoo’s announcement that CEO Marissa Mayer is implementing a forced ranking system has once again ignited the debate about evaluating employee performance: do performance management systems do more harm than good? For large organizations, it’s a given that there is a formalized process performance appraisal. According to research the Institute for Corporate Productivity (i4cp), 86% of companies have some form of performance management system in place. Yet, the systems are deemed sorely lacking: only 28% of “high performing” companies say they do performance appraisal well. When you factor in employee responses, the picture is even more dismal; over the past seven years, the percentage of employees saying their performance review process is “fair” has dropped from 71% to 29%.
Why can’t companies get performance management right?
To get to the heart of the problem, you must look to the intent: why do companies implement performance management systems in the first place? More importantly, what is the belief system behind the intent? In an ideal world, performance management systems are an organization’s way to get a handle on the individual contributions of its workforce. And, as the maxim goes, “what gets measured gets done.” So, it seems reasonable to find a way to measure employee output. Here’s the problem: sometimes the belief system about measurement is flawed. Senior leaders put forth performance management systems that they think will tell them who is performing the “best”, but flawed thinking often muddles a system’s effectiveness.
Here are three fallacies of employee performance measurement:
All measurement is good. Nearly everything can be measured, but it is worth the effort? In the classic book “Human Competence” Thomas Gilbert states that all performance can be measured, but it’s really only worthy performance (or, as Gilbert calls it, “competence”) that is worth measuring. Think of all the things you are asked to measure at work — how many of them are worth it? How many status reports, update meetings and other activities fill you day in the name of “measuring productivity”? In the same way, many performance measurement systems seek to easily quantify performance as a means to determine pay raises, promotion opportunities and career development.
What if, instead, there was less measurement, but more focus on measuring the worthy things?
Statistically, there is such a thing as an “average” worker. This fallacy assumes that when you view your workforce productivity, output will distribute in a classic bell-shaped pattern. In reality, it doesn’t. According to research by to Ernest O’Boyle Jr. and Herman Aguinis, authors of the study “The Best & the Rest: Revisiting the Norm of Normality of Individual Performance,” a disproportionate amount of productivity is created by “superstar” employees, with the remaining “typical” employees’ output falling below what would be considered “average”. So, performance appraisal systems that operate with this mindset inherently underestimate the contributions of high-performing employees.
What if we viewed employees individually and not as a part of a statistical construct?
Linking pay to performance increases productivity. Up to a point, yes, it does. When the dollar of the pay raise is significant, then employee productivity does increase, along with reported levels of employee engagement. The challenge is that organizations rarely have enough funds to go around and this leads to the “forced distribution” element — for example, having to spread a dollar or percentage amount of annual pay raise across the entire department. And, research conducted by Jon Turner, Senior Organizational Development Analyst with Lockheed Martin, suggests that giving smaller amounts of money ($500 or less) actually leads to greater levels of employee dissatisfaction than no financial bonus at all. Call it the “why bother?” phenomenon: the amount is so small that employees wonder why their employer even bothered.
What if the distribution of rewards was separated from the performance discussion and both were parts of two distinctly different processes?
Measuring employee performance is a good thing; it helps managers understand the ways that their teams are contributing to the company mission. But when measurement is guided by fallacious thinking, performance management systems become unwieldy tools prone to demoralize rather than encourage improved performance. As a leader, be sure that what you measure makes sense.
Interested in further reading on this topic? Check out the article on my HR Answers.com page titled: Five Reasons Companies Are Abandoning Forced Ranking Systems.