How the Darth Vader of Performance Management Gets Forced Ranking Into Your Company...

Let's start with the obvious.  Pay for Performance is tough.  Really tough...

Hold on there cowboy... I don't mean pay for performance for your stars.  I mean pay for performance for the rest of the team.  The average folks.  The poor performers (I kinda feel a "Real Men of Genius" spot coming here). The ones you are spending most of your time managing...

Everyone's a capitalist when it comes to making sure the star gets what they need.  Too bad most are socialists when it comes to pay for performance for average or low performers.  That's where the rubber meets the road in true pay for performance.  You've got limited resources, so are you going to take it away from the low performers to give to the high performers?  Are you really going to give them 1%?

Ann Bares thinks you'll try to take it from somebody else's team via the Tragedy of the Commons.  I agree.. From Compensation Force:

"I like Wikipedia's summary of Hardin's article (Ann's using this to describe what the Tragedy of the Commons is):

This story describes a group of herders having open access to a common parcel of land on which they could let their cows graze. It is in each herder’s interest to put as many cows as possible onto the land, even if the commons is damaged as a result. The herder receives all the benefits from the additional cows but the damage to the commons is shared by the entire group. Yet if all herders make this individually rational decision, the commons is destroyed and all will suffer.

As Hardin and others point out, the "tragedy" plays itself out in a wide range of modern day "commons" - beginning (but not ending) with our use of resources such as water, parks and wetlands, fish stocks and oil.  I believe we often see a similar dynamic at work among managers when it comes time to assess their subordinates' performance and hand out merit increases.

The actions of many managers would suggest to me that they see their role and their primary objective in the merit pay process to be getting the highest possible increases for each of their reports, however that might be accomplished.  If gaming the pay system is the most expedient way to get there, then so be it."

Has anyone NOT seen that at play in their company?  Two things happen.  Either your pay system is loose enough for managers to submit reviews and merits and get the 3-4% in for their lowest performers (I haven't been at a company that did a merit matrix by manager, so for the most part, folks are free to pull from the commons), or they respond to a firm matrix (with specific %'s for specific ratings) by inflating the overall performance rating.

So, they pull from the commons, to Ann's point.  Pretty soon you go to the grassy field, and someone's giving you static for that 6% you are trying to give your star.  Must be November in a rough budget year after everyone else has eaten all the grass.

What's one final outcome of the Tragedy of the Commons?  The Darth Vader of performance management walking through the door and saying, "I've got a solution for this culture of non-performance.  It's called Forced Ranking.  Do what you want with the average performer, but the bottom 10% have to go every year.  That'll keep everyone motivated and competitive."

So, into the void comes an imperfect solution, all because there's no community-based solution for the Tragedy of the Commons...

Comments

[Jim Durbin]

Some companies have solved this problem by moving everyone into bands that determine pay (with the only way to increase compensation based on managing employees). Of course, this means that the only hires are middling drones grateful for a job that isn't too stressful, but this gives rise to very funny movies and sitcoms using the word "Office."

And I'm only partly kidding.

[Totally Consumed]

So what's the solution?

[Ann Bares]

Thanks for the link and for sharing your take on this. You are spot on in your conclusion; by abdicating their responsibility for making sound choices and judgments, managers are only setting themselves to have their choices and judgments severely constrained (ala forced rankings)in the future.