-- Rick Karash, host for learning-org, firstname.lastname@example.org
Rick - when I saw the post from Kathleen Toner, I looked up the many e-mails I
have lately received on this, and noticed some are from other lists. In case you
haven't seen this one, I'm forwarding it in its entirety. This is really good
stuff, I think.
Sean Gawne, email@example.com
---------------------- Information from the mail header -----------------------
Sender: Human Resource Development Group List <HRD-L@MIZZOU1.BITNET>
Poster: William S Guentner <wg2h+@ANDREW.CMU.EDU>
Subject: PAY FOR PERFORMANCE
I am new to the net and I have become interested in the Pay for
Performance issue, primarily because it is a subject about which I have
contrary views to most others. The note shown below was imported from a
Word 5 document and may not be in the best shape to read. I offer it as
"food for thought."
Performance Appraisal vs Performance Management
The introduction of Total Quality Management has focused on many
management systems that have been in place for years. Some of these are
within the Human Resources function and include performance appraisal,
methods of pay (skill-based, merit, lump-sum bonuses, etc.) the job
evaluation process, the method used in determining benefits, and others. I
will only address the subject of performance appraisal here and attempt to
outline a process that conforms to TQM principles as defined largely by
Dr. W. Edwards Deming, but supported by others and also by research that
bears on the subject.
Deming's views on Performance Appraisals (which he lists among his seven
deadly sins) can be summed as follows;
- It fosters rivalry, politics and fear which diminished organizational
- Employees are rewarded for promoting themselves; the organization loses.
- They are detrimental to teamwork, the bulwark of TQM.
- They can leave people bitter, dejected and in despair(.As Jodan says
some quit-which is a very costly process)
The Eastman Kodak Corporation, a 1993 Malcolm Baldridge Winner:
- Identified performance appraisal as a "social barrier"
- 85% of people think they are "above average"
- No positive effects
- A "good" system makes more than half all employees upset.
As I see it we need to answer two questions. These are: (1) Can we
accurately and fairly rate contribution?, and (2) Does the value of doing
so outweigh the potential negatives?
The Case Against Performance Appraisal
The charges are that Performance Appraisal:
1. Disregards and, in fact, undermines teamwork
Teamwork is one of the most important components of a TQM system.
Performance appraisal, however, creates a supervisor-dependent
relationship, not a team-centered relationship. Employees are generally
rated on work they do as independent agents. They, therefore, must be
more concerned with the supervisor-dependent one rather than the
team-dependent one. The undermining of teamwork occurs when employees
know that their performance will be rated on their output, not the team's
output. Work contributions then become person-centered and not
team-centered. Individuals will actually withhold information, data,
effort, from the team and use it independently for a higher rating.
There is an assumption prevalent in management that competition is good
for the organization. It is generally believed that the creation of
competition among employees for promotion or pay will result in a better
organization. Like many assumptions, this one cannot be supported by
research findings. Alfie Kohn in his book No Contest; The Case Against
Competition destroys any remaining myths that competition in the workplace
is good. His research concludes that gaining success by making others
fail is an unproductive way to work or learn, a behavior that is
devastating to individuals and society. Any win-lose structure is
psychologically destructive and poisonous to our relationships, so that
"healthy competition" is a contradiction is terms. Dr. Deming is of the
same opinion. It is therefore incumbent that any performance system be
designed so that competition is not an integral part, knowingly or
2. Disregards and, in fact, undermines the system
Performance appraisal disregards the fact that employees work within a
system. It is also well known that it is virtually impossible to discern
from the output of the entire system only that value added by the employee
being rated. Moreover, performance appraisal encourages individuals to
circumvent the good of the system for personal gain. Performance appraisal
encourages individuals to perform outstandingly as individuals. Optimal
performance accomplished without improving the system as a whole, leads to
havoc. Consider a chain of internal customer-supplier relationships in
which one of the employees works to optimize his/her personal output in
order to receive an outstanding rating. The other workers in that chain
can be put at a disadvantage if the system is sub-optimized because one
element in the system has been optimized. Systems theory is quite explicit
on this one element, or sub-system, cannot be altered without affecting
the entire system. With performance appraisal a decentralized,
individual-focused approach, it is virtually impossible to improve
systems. Improving a system almost always requires a concerted
integrated, focused, coordinated, cross-functional effort.
If you want better numbers, you have three choices:
a) Improve the system -performance appraisal won't do this
b) Distort the system -better numbers for the short-term only
c) Distort the numbers -which is often the case.
3. Disregards and, in fact, increases variability in the system
All work is characterized by variability caused by the system in 96% of
cases according to Dr. Deming. Only 4% of variability is employee caused.
With this as a given, performance appraisal which rewards one employee at
the expense of another will cause greater variability in the system
because employees may become uncooperative, engage in subtle sabotage,
jockey for the easier jobs, set lower goals, or include in their goals
work that already been completed but as yet unknown to the supervisor.
4. Uses an unreliable and inconsistent measurement system
Performance appraisal uses a measurement system which is unreliable and
inconsistent. Performance appraisal is often thought of as something that
supervisors "do" to employees rather than an active partnership.
Performance appraisals are accomplished by supervisors as "evaluators."
Several concerns have been raised about this process. They are:
- Are they consistent, "evaluator" to "evaluator"?
- Do they rate according to "Pygmalion"?
- Do they tend to favor those who are most like them?
- Is the rating influenced by the rater's position among the group
- Do the raters use the same criteria and weigh them the same?
The above points refer only to individual raters. When one views the work
environment as a system in which people operate as Deming demands, other
factors become influential in the rating process. These factors are:
- A = The workers individual effort and personal contribution.
- B = The training and orientation given the individual
-are these consistent employee to employee?
- C = The variability and capability of the processes and systems within
which the employee works.
- D = The system of evaluation. Possible inconsistent use of methods and
formats. Possible inconsistency and bias of evaluators.
- E = Others.
How do you solve the equation, A+B+C+D+E = Rating, when only one variable
is known? If you rate or rank, the following must be assumed:
- Personal effort/contribution can be correctly separated from the effects
of the system.
- Training, coaching and leadership are adequate and consistent from
individual to individual.
- The effects of system barriers can be correctly separated from the
effects of actions taken by the person being rated.
- Evaluator effects can be correctly separated from personal effort/
contribution or there are no evaluator effects.
- Carry-over effects (from previous actions of others) can be correctly
separated from the effects of actions taken by the person being rated.
5. Uses an unreliable and inconsistent measurement system
Performance appraisal encourages an approach to problem-solving which is
superficial and "culprit" oriented. Superficial searches look for causes
- "Ask why until you find a 'who'." Deep searches will find a source of
the problem within the system.
Level of a problem
1) Customers are being overcharged or undercharged - Ask why?
2) Clerks misread register printout - Ask why?
3) Because the print is small & faint - Ask why?
4) Because the ribbon dries out fast - Ask why?
5) Because it is a cheap ribbon - Ask why?
6) Because the purchasing agent got a good deal on them
Compare this to what is typical in a problem solving process that ignores
1) Customers are being overcharged or undercharged Action - Adjust the
bill (Which does solve the problem
2) Clerks misread register print becasue the print is small and faint.
Action Replaced the ribbon (which doesn't solve the problem
3) The ribbon dries out fast because it is cheap because the buyer got a
good deal on them
Action Change the policy which does solve the systems problem.
In the conventional performance appraisal mode we tend to ask who and not
why. Performance appraisal is a who-centered approach to problems. It not
only exemplifies a who-centered approach, it also sustains and
incorporates it into management practice.
6. Tends to establish an aggregate of safe goals, a ceiling of mediocrity
in an organization
Performance appraisal tends to establish an aggregate of safe goals, a
ceiling of mediocrity in an organization. (If I cannot squeeze or
circumvent the system, then I must be careful to pick easily attainable
7. Creates losers, cynics and wasted human resources
What happens when half of employees learn that they are seen to be in the
lower 50%? Performance appraisal creates losers, cynics and wastes human
- Losers: those who accept that they are in the "lower half".
- Cynics: those who don't accept it.
- Self-fulfilling prophesies.
- For what possible good?
Most people feel that they are better than average as mentioned above by
Eastman Kodak's survey. I am aware of other information that states an
80/30 rule; that is, 80% of the people feel they are in the top 30% of
performers. Add to that the perception that they get better each year with
greater experience on the job and you see a problem develop. To destroy
that perception is to lower self-esteem with the potential consequences of
lower productivity through lowered motivation ("If that's all they think
of me, that's all I'll give them.")
8. Seeks to provide multiple managerial functions (pay, promotion,
feedback communications, direction setting, etc.) yet is inadequate to
accomplish any one of them.
Performance appraisal seeks to provide multiple managerial functions (pay,
promotion, feedback, direction setting, communications, etc.) yet is
inadequate to accomplish any of them. Yet, the manager is expected to all
of these with a performance appraisal system and do it in 2-3 hours at
most a year.
With regard to tying performance appraisal to pay systems - Performance
appraisals are generally tied in with merit programs; that's the reason
(or one of the basic reasons) for them. Yet, we know that pay is not a
motivator. Survey results of U.S. employees indicate the following
factors as "most important" to their employment as reported by the Nova
- Recognition for competence and accomplishment
- Respect and dignity
- Personal choice and freedom
- Involvement at work
- Pride in one's work
- Lifestyle quality
- Financial security
- Health and wellness.
Rewards motivate people to get rewards - not results.
There is one last aspect of present performance systems that deserves
mention and that is the opportunity cost of ratings, these are really lost
opportunities in that time and effort is spent in a superficial search for
causes or what may be described as those areas of work in need of
improvement. Performance appraisals also have the effect on people of
reducing their level of risk taking for obvious reasons. Present
performance appraisal systems also inhibits a focus on excellence; that
is, to encourage people to focus on what they do well rather than
concentrating on those areas that are "in need of improvement." The
Center For Creative Leadership studies suggest there is little we can do
about what is identified as "needs improvement." Rather, gains are made by
focusing on strengths and what can employees do with those strengths.
*In summary of what has been said: Conventional evaluation systems are
flawed in that they:
- Disregard and undermine teamwork.
- Disregard the effect of systems and normal variation on individual
- Encourage individuals to squeeze or circumvent systems for personal
gain rather than to improve them for collective gain.
- Rely on subjective measurements by supervisors.
- Encourage an approach to problem-solving that is superficial and
- Tend to establish an aggregate of safe goals - a ceiling of
mediocrity in an organization.
- Create losers, cynics, and wastes human resources.
- Seek to provide a means to administer multiple managerial functions
(pay, promotion, feedback, communications, direction setting, etc.)
yet are inadequate to accomplish any of these.
Instead, Total Quality Management Systems should:
- Serve as a tool to promote the goals and priorities of a total quality
organization, including customer orientation, teamwork, and process
- Outline measurable or observable job expectations that are within
the control of the individual or team, thus eliminating the use of
arbitrary numeric scores or scales.
- Provide a forum for communication about barriers to performance and
opportunities for improvement.
- Identify and provide the resources employees need to improve their
skills, grow personally within the job, and improve work processes.
- Be developed with employees' input and implemented only after training
for both managers and employees.
* Source; "Total Quality or Performance Appraisal: Choose One" by
Joiner Associates consultant Peter R. Scholtes, National Productive
My recommendation is that we develop a Total Quality Performance System
that is compatible with the Total Quality Management principles and
dispense with the present system(s) now is use, for the reasons stated
On the subject of pay: it should be divorced from the TQ Performance
system and efforts made to investigate others systems of pay that are
compatible with TQM principles. There are several I know of in other
companies. Having said that, the absence of a pay system that is
compatible with TQM principles should not deter the development of the TQ
Performance System. One does not need all the answers in order to discard
a flawed evaluation and compensation system that sabotages its total
quality initiative. Peter Scholtes writes that "When you are doing
something that is demonstrably harmful, you can stop doing it without
finding an alternative way to harm yourself. Conventional managers are,
in effect, beating their heads against the wall and asking, 'If we stop
beating our heads against the wall, what will we beat our heads against?'"
That's it for the time being. I strongly feel that present systems are
destructive of organiZational effectiveness and it is time that attention
is paid to research in developing systems that work.
I would be interested in comments.
Carnegie Mellon University
I might add that I am NOT an adademic. I have 34 years in industry
working for a Fortune 50 company, and have held positions of General
Manager of HR and Coordinator of Quality for an international Company of