About Performance Systems

A few months back I, along with a colleague, were facilitating a session for a group of around 30 employees. My colleague was trying to explain our performance system to this group. The participants expressed heartburns about the bell curve and its impact on individuals. I felt it was important to explore along with the participants the origin and objectives of a performance system, and what options we could look at.

The contents of the discussion, in retrospect, have cleared a few of my fundamentals about Performance Management:

• Why do we need a Performance Management system? What objectives does it serve? Can we do without it?
• Is it possible for anyone to be happy as an outcome of the Performance Management System?
• Can we do without a Bell Curve?

When I asked the first set of questions, I got a stoic silence for a reply. The first few answers I gathered were “You obviously require it”, “ How can you do without it?”. …Ah! Hmm! Err!!! , etc, etc.

A Performance Management System serves 3 purposes:

• Mutual expectation setting exercise - Its an exercise for setting of mutually accepted goals and tracking progress against it.
• It’s a work planning exercise – what will get done, when, how and by whom? What resources would be required and how would they be got?
• It’s a mechanism through which how rewards would be shared is decided.

You need a performance management system because you need a system to set goals, plan for how will they get done, and periodically track progress against it. The problem comes with linking rewards to it – that’s where the bone of contention lies!

Now the organization has 2 choices:

• To reward differentially
• Not to reward differentially – in this case you would not need an individual rating system.

People want differentiation because it gives them a chance to benefit from it but at the same time they don’t like it when they are at the receiving end of it (a premier B school alumnus would talk of the lack of a performance oriented culture when he finds his vertical growth is limited to certain time boundaries but ask him if he would like it if his junior from campus were to become his boss, and he usually would fumble for answers). On the other hand, if you have a system in which there is no performance based differentiation, then employees say it’s akin to a government organization.

Hence it’s a question of choosing the less worse of the 2 bad option. Rather because people want differentiation; we seem to go for it.

But what happens when you have differentiation? The guy who gets the highest rating feels there is not enough differentiation between him and the guy who has got an average rating. On the other hand, the guy who has got an average rating feels that the guy who has got the highest rating did not really deserve it. Hence people at either end of the bell curve are not really happy. What options does one in such cases?

I am reminded of Stacy Adam’s equity theory. In performance management there can be no distributive justice, one can aim only for procedural justice. Hence the need for focus on goal setting, work planning, and reviews.

The other source for heartburn is “the impossibility of knowing what standard of performance would guarantee me a highest rating”. When the goals are set for an individual, they are set on an absolute scale but when the rewards are to be decided then relative performance is taken into consideration. Hence there would be a sense of powerlessness which an individual would feel (both the boss and the subordinate). Does anyone like to feel powerless? What possible reactions can play out in such cases? A boss might go ahead and blame the system which HR has put into place and his subordinate would believe him, it not lose respect in his boss’s leadership.

Can we do without a bell curve? Bell curve is about relative rating – we can do without it but then employees would say that there is no performance based differentiation. The only way we can do without a bell curve is if we could provide differentiation without having a bell curve – but how do you do that? I don’t have an answer presently. The things you can play around with are the rating scale, the %age distribution across the bell curve, and how the rating would affect different salary components. But even then distributive justice would be elusive.

To end with, here are a few other thoughts/observations:

• Sometimes I feel individuals attach too much importance to ratings. Should I take my rating as an evaluation of me, or as evaluation of my performance for a particular year – calculated to determine the reward that I would get for that year?
• An obvious outcome of linking the reward system to performance management seems to be that the major parameter against which success is measured today in our world is the amount of money one has.
• I was having a discussion with a friend a few months back. He was not happy with his performance rating at work– he had got an average rating. He said that when he gets an average rating he feels he has underperformed. I was surprised and asked him to elaborate. He said “I come from a family whose members are known for their intellectual meritocracy (true of a number of Indian families). In my family, being average is akin to underperforming. It makes me feel ashamed” The measure of success seems to be whether my performance is above average or not! J

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Sourav