Wednesday, March 24, 2004
HR Myths #3 - Performance Buckets
Around this time of year, staff are being paid annual bonuses and receiving merit increases in basic pay. These will have been based on the results of a performance review which took place in the first quarter. The performance of the individual will have been assessed against some goals and a rating - usually on a scale of 1 through 5 - will have been allocated. For many managers this process is one of the hardest things they will ever do. Why? Quite simply, the rules in most big companies are not aligned with the best interests of the employees, the customers or the stock holders.
The first fallacy is the concept of an equal distribution of performance across a team - someone has to get a 1 and someone has to get a 5. The idea is based on the statistical bell curve normal distribution. However, when your statistical sample is (for example) less than 20 then any statistician will tell you - you do not have a basis for a normal distribution.
The second fallacy is that all teams perform equally and that someone from every team deserves a 1 and that equally someone from every team deserves 5.
The double combination of these “buckets” for performance rating is that ultimately a manager has to have that chat with some poor unfortunate employee. “Well Joe, as you know, we both reviewed your performance and agreed that you had given everything asked of you and more to our team performance this past year. As you know, our team delivered on its promises. In fact our agile techniques mean that we are the highest producing team in the company both in productivity and efficiency/costs. Your contribution was key to this success. However, as you know, this is a strong team and all of your colleagues contributed strongly too. You know how the performance rating system works, and unfortunately after discussions with other managers in the business unit, I regrettably have to give you a 4 rating. I managed to argue that no one on our team deserved a 5. Consequently, and I am ashamed to have to report this, you will not be receiving a pay rise this year and your bonus check is a little light. I want you to understand that this does not reflect how I feel about your performance and I will try to make this up to you in other ways. However, the company rules force me to make decisions - some that I am not comfortable with. In a team of fast runners, you are being rated as the slowest this year. Hopefully next year it will be different.”
What is the effect of this? In the worst case, the individual goes out and polishes up their resume and leaves the company soon afterward. In the best case, they begin to become defensive. They don’t share so readily with the team. They are keen to be given individual credit for their contribution. After a few years, the whole team is doing it and they are no longer a team but a group of fearful and defensive individuals.
Existing HR policies discourage team work, discourage knowledge sharing (death in a knowledge industry), and encourage sub-optimal even divisive, political behavior. If you don’t want to get that bottom rating, better keep in with the boss, better get noticed, better not give selflessly to the team (or the customer, or the business, or the stock holders). Better still why not make it difficult for your colleagues to run as fast as you? Why not spend your energy trying to hinder the other runners in the field?
In sports, when a team wins a championship, everyone on the team gets the medal and the bonus payments. It’s time we started to remember that when we reward our knowledge workers.