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Crashing With The Nose Up

By James R. Crow; Presented at KMWorld, October 2001

What do the following systems have in common?

They are all popular programmes used by management in the belief they will improve performance.  They also all create winners and losers, which is counter-productive to team work, destroys trust, creates fear and makes it difficult for any knowledge management system to be effective.

Most merit-pay systems share 2 attributes: they absorb vast amounts of management time and make most people unhappy.

The Performance Appraisal

Theory: Reality:
  • Reward exceptional performers
  • Identify poor performers
  • Determine pay rates
  • Feedback on job performance
  • Career planning
  • Motivate employees
  • Helps establish an internally competitive system
  • Takes focus away from the customer
  • Requires tremendous time and resources to develop and administer
  • Measures most recent performance
  • People similar to the appraiser tend to receive higher appraisals

Reward & Recognition

Theory: Reality:
  • Good performance should be rewarded, bad performance should be punished.
  • Money is a motivator.  Tying pay to performance will motivate employees.
  • Money is not a motivator.  Money is, at best, a satisfier
  • Selection process can cause conflict within the group
  • Any positive impact on performance is short-lived

Contests/Rankings/Incentives

Theory: Reality:
  • We reside in a capitalist economy which is based on, and benefits from, competition
  • We will benefit as an organisation by making competition the way we do business internally
  • Creates winners and losers, and there will always be more losers than winners
  • Ignores the existence of a system and the interdependence of the components within the system
  • Takes away from customer focus

Quotas

Theory: Reality:
  • To achieve increases in sales, production, quality etc. we must set quotas
  • People will strive to achieve these quotas and our sales, productivity and quality will increase
  • Without a quota, no one will sell/produce anything
  • Sales tend to peak at the end of the month/quarter/year
  • Sales reps tend to limit their sales to only slightly above the quota
  • Sales reps sometimes hold back orders as a cushion towards next month's sales

The objective must always be for the organisation to win, not the component parts.  Management must move its thinking from individuals to systems and processes.

Develop People - Manage Systems

We need to move from a 'command and control' structure to a co-operative structure.

Old = Control = Competition New = Co-operation = Team Work
  • Win-Lose
  • Secretive/Closed
  • Working for Self
  • Suspicious/Untrustworthy
  • Us vs. Them
  • Win-Win
  • Open/Shared information
  • Working Together
  • Trusting/Trustworthy
  • Collaboration

Will we ever learn?

"Despite the evident popularity of this practice, the problems with individual merit pay are numerous and well documented.  It has been shown to undermine team work, encourage employees to focus on the short term, and lead people to link compensation to political skills and ingratiating personalities rather than to performance.  Indeed, these are among the reasons why W.Edwards Deming and other quality experts have argued strongly against using such schemes."
- Jeffrey Pfeffer, "Six Dangerous Myths About Pay", Harvard Business Review, May-June 1998

If management by numbers worked, the former Soviet Union would have been a success. - James R. Crow