Performance Management Folly

1. Company-mandated performance appraisals
2. Incremental annual increases to base salary

We are going to muck through each of these worst practices in turn and offer far better alternatives in future posts.  But let’s get to the crux of the problem right now.  These programs are ineffective.  Very much so.   Do people perform jobs better because these programs exist? No. Is productivity improved as a direct result of annual appraisals and infrequent incremental upticks to base salary? Not a chance.  

Folly # 1: Performance Appraisals

Forced structured appraisals, complete with detailed forms, carefully scripted meetings and performance measures linked to a raise—do not work. Meaning employee output or job satisfaction is not improved. There is no link at all between these feedback tools and sustained behavioral change for the better. Productivity, quality and profitability are completely unaffected. Managers and employees alike almost universally loathe the process. They don’t value it, never did. They are correct.

Yet most companies still deliberately mandate managers to use these systems with every employee. Leery supervisors are trained to fill out the surveys properly, document everything and carefully justify each employee’s raise.  The results are nil every time. Don’t take my word for it. Management experts and behavioral scientists have long studied and recorded the fact that it doesn’t work. Common sense tells us so too. Yet we dutifully follow detailed performance plan schemes and check each box as if it matters. In my next post–a personal favorite– I walk through the modern performance appraisal process typical in most organizations.  Get ready to laugh.

Folly # 2: Incremental Merit Increases

Base salary increases in annual small increments do nothing to motivate good workers or retain them—this fact is also old news, well researched and widely documented. Yet so called “merit rewards” still serve as centerpiece to most pay systems. In actual practice, these little bump-ups are nothing more than cost of living increases to which many, many workers feel they are entitled. Entitlement–that’s what happens when you get something for nothing on a predetermined schedule and same date year after year.

Here’s how it typically works: The company allocates a budget “pool” for salary increases to all—usually adding 2.5% to 4.5% annually to total base payroll. That can be a lot of money for an employer of even modest size, especially compounded year after year. But to the average wage earner who gets his 3% cut—its peanuts. That’s why when raises are announced there is an immediate spike down in employee morale. The vast majority of workers (including your best and brightest) are unhappy or indifferent about their dinky raise.

We are going to look very closely in future posts at the dynamics involved that make this merit raise thing so universally ineffective.  When rewards are allocated and delivered this way, it is  a huge squandering of company money which goes into a performance management black hole every time you do it. I remain amazed that most established employers have been throwing away dollars like this for decades. And still do it. It’s an astounding cash waste, budgeted, institutionalized and regularly scheduled year after year. It is one of the all time worst HR practices in the universe.

Stay tuned.