Bye-Bye Performance Ratings and Pay for Performance…

Andy Porter Andy Porter, Change, Compensation/Cash Money, Performance

I’m going to let you all in on an HR secret – performance measurement and rating systems are a complete waste of time and often cause more harm in the organization than good. And, if that’s not enough, this whole pay for performance idea? Yup, you guessed it, that’s a myth too.

So, why do companies spend so much time and money on trying to come up with new rating systems and fancy pay for performance plans? Actually, I have no idea. I’m hoping someone out there can help me on that one. But, this week is a milestone week in my career – I’ve officially decided to do something about it – I’ve propsed to my executive team that we eliminate our performance rating system and ditch this whole pay for
performance idea.

Here’s why:

  • We’re a company trying to develop innovative medicines for patients and we know that real innovation is often preceded by multiple failures that we can learn from and improve upon. By rating short term employee performance through semiannual reviews, we’re preventing employees from focusing on the big picture, taking long-term risks and being innovative. We want employees to fail early and often.
  • A rating based system actually encourages a manager to give less frequent performance feedback to employees preventing real-time learning. That’s a bummer.
  • Having a compensation and reward system based on the faulty premise that financial incentives improve performance, we are undermining powerful intrinsic employee motivation towards achieving our mission of curing cancer. These guys don’t need to be “bribed” to do a good job, they just want to be paid fairly and competitively.
  • There’s no evidence that I’ve seen that convinces me that a performance rating system acutally improves performance.

So, I’m staking my professional reputation on the idea that nibbling around the edges and tweaking the rating system or introducing a new reward program is old news and that it’s time for a whole new approach. Now, I suspect right about now many of you are reading this and saying that will never work at my company. You’re probably right. But, that’s not the point. Here are a couple ideas that I do think you can use no matter what your situation:

  • It’s all about the process. We’ve had an internal group of employees working on developing, refining and testing these ideas for almost 7 months and there’s no way I could have made this recommendation without this group. Yes, it took a lot longer than I would have liked but we’ve got momentum and we’ve got buy-in (so far at least!)
  • Know who you are. I believe this system will work for us based on the type of organization and culture we’re trying to build. That’s called creating a competitive advantage, not just implementing best practices that everyone else is already doing.

Now, I’m under no illusions this will be all flowers and candy. There are going to be some tough times for sure… but I’m going to share these challenges with you as part of my blog posts over the next several months. I’ll also be part of a panel discussion at the 2011 Human Capital Management Summit where I’ll give even more of the lowdown.

So, wish me luck, friends. My reputation’s riding on it!