Pay for Performance = Pay for Luck = Disengagement
By Michelle Malay Carter on March 18, 2008
Pay for Performance is Cruel
Given that “pay for performance” essentially means “pay for outcomes”, I’ve argued from day one that “pay for performance” is cruel and a breeding ground for corruption, not to mention disengagement.?
A new working paper from Carnegie Mellon and Harvard Business, No harm, No foul, The outcome bias in ethical judgments, comes to a similar conclusion.?
?Too often, workers are evaluated based on results and not based on the quality of the decision? behind the results, write HBS professor Max Bazerman and colleagues. ?Given that most consequential business decisions involve some uncertainty, the upshot is that organizations wind up rewarding luck rather than wisdom.?
Judging Effectiveness versus Measuring Performance
I’ve argued that managers need to be judging effectiveness not measuring performance.? The first requires a brain which can consider the context and circumstances surrounding an employee’s work.? The latter requires a calculator.
Until a calculator can provide me leadership, I don’t want one deciding my performance appraisal.
Our Beliefs Underpin Our Actions
We have tried to take the judgment (which will always be subjective and ineffable) out of management in a noble effort to be objective.? Similarly, we try to pretend decision making does not require a leap of faith.? Both are ludicrous, but both beliefs underpin most current performance management systems.
Systems Drive Behavior
Why would a sane person?give her heart, her discretionary effort to a system built on luck??? Helplessness breeds cynicism aka disengagement.?
Shall we continue our efforts to fix our “lazy” employees and try to motivate them with trinkets,?or rethink?our dysfunctional systems?
Filed Under Corporate Values, Employee Engagement, Executive Leadership, Felt Fair Compensation, Managerial Leadership, Requisite Organization
Comments
6 Responses to “Pay for Performance = Pay for Luck = Disengagement”
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As an educator, I wonder how this argument might be extended to rewarding teachers, schools and districts based on their performance on standardized testing.
Ross,
Hi Ross. Thanks for stopping by and commenting.
I believe the same logic applies. A teacher’s appraisal must be judged in context – given the circumstances, students, resources – did he make effective judgments and apply full effort toward the teaching and progress of the students?
If a teacher spends all her time with below grade level students, and all but ignores those at or above grade level, has he been effective? He may make his numbers, but he hasn’t been effective.
Conversely, a teacher can give all she can but still have “underperforming students”. Has she been ineffective?
If I were a teacher, I wouldn’t want test scores dictating my appraisal. They certainly should be ONE input into my overall effectiveness appraisal but not the sole source of data and not a litmus test.
Regards,
Michelle
Michelle – as usual this post thought provoking.
I think I understand where you are coming from, and agree to some extent that luck can play a considerable role in a pay for performance system… Should we produce Widget A or Widget B??? Widget B feels lucky… Woo Hoo! it was a success!
Unfortunately we live in a results orientated economy where managers and leaders are constantly being judged by the value that they add to the bottom line and thus the stock price.
If we move from a results orientated system, how do we judge the effectiveness of one’s judgement if results aren’t tied to their judgement? Do we look at what should have happened but didn’t?
Hi Chris,
Thanks for the good questions. The Requisite Organization model, from which I base my arguments, has a lot of pieces and parts. I can only hit one or two in each post so a lot goes unsaid.
Your manager is accountable to review the assignments he gave, along with the resources provided and circumstances and decide if you were effective. Did you make reasonable judgments? Did you take into consideration what you should have?
Results should be ONE input into an overall effectiveness judgment, but they should never be THE input.
Without sounding like a broken record, different levels of work call for different levels of cognitive capacity. So if you understand work levels and hire someone with corresponding capacity, you should be in the ball park with the judgments made.
Also, If you understand work levels and hire accordingly, one’s manager will be one level of cognitive capacity higher so having your performance judged by your manager will not feel sleazy. It will be a trust-inducing process.
Major problems surface when a person with level 2 cognitive capability is slotted into a level 4 role. This person will not make satisfactory judgements. Nor will he be a effective manager of his level 3 direct reports.
Thanks for the questions.
Michelle
Anyone who wants to learn more or does not believe this should read Alfie Kohn’s “Punished by Rewards.” He pretty much came to the same conclusion back in the early 90’s.
Hi Mike,
Thanks for the comment and reference. I’ll have to look that up.
Regards,
Michelle