More bad news about employee performance reviews

In previous blogs we have argued that performance assessments, or any assessments for that matter, are counter-productive. Recently, the Wall Street Journal published an interesting article entitled “The Trouble With Grading Employees” about the difficulties of grading employees. The article reported on an experiment conducted at Intel that tried to reduce the negative impact of the company’s rating system. Intel’s HR group contended that the 70 percent of the workers who got average or worse ratings using this system became discouraged. As a result, Intel executives decided to try an experiment — eliminate the rating system, at least for a small group of people, and see what happens. The findings showed that they were still able to distinguish between high and low performance, but the morale of the participating employees was much better. The WSJ article also reported that several other companies are attempting to do the same thing. The article went on to report that even with the successful results, Intel executives and leadership of other companies did NOT eliminate ratings across their organization. The issue that surfaced was that executives typically like the rating systems. They find the ability to make personal judgments about others appealing. In addition, executives feel uncomfortable trusting that they will be able to lead without the hammer of performance management. For executives it is all about power, and they are reluctant to relinquish this power even to the detriment of their organizations. Now consider our results when we work with companies and how we can consistently raise 95 to 98 percent of workers, in any given job category, to perform at their best.  While there is still some differentiation, most of the people are doing a great job and should be recognized and rewarded for their performance. How does old style industry-based leadership cope with the lack of the traditional means of differentiating and motivating? First imagine that everyone in your organization is a star. Just think about how productive and content your organization would be in this situation. Wouldn’t that be amazing? Now, imagine how you would compensate all of your star performers. We had one Fortune 500 company say to us, “we don’t want everyone to be as good as the stars because then we wouldn’t be able to tell who to pay and who to manage.” Here’s a thought: How about sharing the compensation more equally? I’m sure you’re wondering how this would work. You’re probably thinking, wouldn’t my business suffer? This does work because if everyone is a star, the total pie grows, so everyone will make more money, even as the differential becomes irrelevant. I know this may sound “vaguely socialist,” as Dan Pink puts it, but the science and our experience suggest that this is the direction companies need to go or they’ll get left behind.  ]]>