Scrap Performance Appraisals - Part 5

Thanks for your participation, trackbacks, comments and emails. This has been a fun series. So much has not yet been said or explored, so maybe I will do this again sometime.

Money!

If a company eliminates performance appraisals, then how should it determine:

• How to pay people
• How to reward excellent performers
• How to divvy out pay increases

Many performance appraisal systems are still linked to pay, but lots of companies have already made the change to separate these two systems. The advantages of separating pay and appraisal are more accepted than the "scrap performance appraisals" argument and it is a place some companies have chosen to start. Even so, there are still many people who think pay can motivate people to do their best work. This is false. Most of us have heard this before:

Pay is not a motivator, but it can be a demotivator if inadequate (a nod to Hertzberg here). Of course many of US hate to admit this because WE want raises and bonuses.

Of course we want money, who doesn’t. But does it make us perform better? No! And when money is dangled in front of people it can be downright dangerous to our intrinsic motivation. To do our best work, our hearts and minds must be engaged and alive.

    Pay-for-performance - corporate pimpery at its best.

I have some pretty good pals who buy a lot of the argument against performance appraisals but who are reluctant to believe the above statement.

The benefits of pay being used as an incentive are short lived and limited. Incentives kill interest, intrinsic motivation and engagement. Remember the example from Day 2 quoted from Garold Markle‘s book called Catalytic Coaching? The company bought into 13 of Deming’s 14 points. I have to say, my pals are buying into 9/10ths of the motivation debate, but not this last 1/10th. Hey pals, you know who you are, does this make sense?

I understand, I really do. People seem to “like” incentive systems. They ask for and enjoy healthy competition. If they did not use incentives in sales, they would not be able to hire great people.

BALONEY! I understand that it is a tough change to make, but the research in this area is crystal clear. Read Alfie Kohn’s book Punished by Rewards, a book with lots of research backing it up.

Most have no idea how amazing a salesperson can be when he or she is genuinely jazzed and intrinsically motivated. Some of you may think you have seen his or her best work, but if your pay system weighted heavily toward incentives, you have not.

Many companies are moving to a market based pay system and forgoing any merit component. They use promotion and job growth as the vehicle to move excellent performers up in pay and responsibility. Some use profit sharing to acknowledge people’s contributions to results (as a group). These approaches take a lot of the angst and focus on extrinsic rewards out of day to day conversation. This is a good thing.

Merit is another farce. I do not know how managers and HR execs keep a straight face while sharing that their merit plan rewards top performers when the majority of these systems offer a raise differentiation that is tough to measure without a microscope. Telling someone she is outstanding and then boasting that she is getting a 4% raise (when it is widely known that you can do little more than breathe on a daily basis and get 3%) is embarrassing.  For those of you out there with systems like these - do what you can to change them, because people deserve better treatment than this and your top performers, the ones you want to stroke and keep, are the most negatively affected.

I will again recommend the book Abolishing Performance Appraisals. The authors offer many examples of what real companies are doing. They share approaches that have worked and those that failed. I will also repeat that if you are a parent, read Alfie Kohn. He has several books and articles written specifically for parents and educators.

Bottom line: Pay well and based on the job. Save the money you would use for incentives and rewards and hire and train better managers and leaders who will create an environment in which people want to work and grow.

Comments

[Michael]

I heard about you due to a post at The True Talk Blog.

I'm all for scrapping performance appraisals. You would be hard pressed to find a better way of dodging your responsibility as an organizational leader than the appraisal system. And that is likely why will listen to your well-reasoned case.

Still, I'm an idealist! Thank you all you have written and the sources you have recommended. Perhaps more than a few will give you a listen. It's time for a change!

[Lisa Haneberg]

Michael:

Thanks for your thoughts! I agree that many leaders use the appraisal system as a substitute for great management.

[qualityg]

Couple comments/questions.

What is the purpose of a performance appraisal?

If it's to improve performance then why do companies NOT promote and share those top performers methods for replication?

If money is such a motivator then show their bonus amount next to their picture.

Cooperation is a pre-requisite to competition.

Well done series!

qualityg

http://qualityg.blogspot.com/2005/06/leadership-performance-appraisal.html

http://qualityg.blogspot.com/2005/06/leadership-are-you-and-your-company.html

[David St Lawrence]

Wonderful series!

If I ever work for a company again, I will do my best to put your ideas into effect.

A market-based pay system makes a lot of sense and will throw HR and the bean-counters into a tizzy. :)

It is the system which most upwardly-mobile employeees use to determine what their salary demands are anyway. If they don't get the money they are worth, they are out of there.

[mark]

Great, great blog. A lot of interesting thoughts. Thanks.