Fistful of Talent has a new blogpost on Pay for performance & guess what.. Andy Porter, VP of HR/OD with Merrimack Pharmaceuticals says what most of us secretly believe but never have the guts to say it aloud....they are going to "junk" their performance management system & their pay for performance model.
Here are some of the reasons he gives
1. 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
2. A rating based system actually encourages a manager to give less frequent performance feedback to employees preventing real-time learning
3. Having a reward system based on the faulty premise that financial incentives improve performance, we are undermining powerful intrinsic employee motivation towards achieving our mission
4. There's no evidence that convinces me that a performance rating system actually improves performance
The last point is very pertinent to note, in fact I happened to read the very same point by Jeffrey Pfeffer in his testimony to Congress about Evidence-Based Practices. Prof. Pfeffer notes some interesting points which point to what Andy has said above.
1. Mere prevalence or persistence of some management practice is not evidence that it works
2. The idea that individual pay for performance will enhance organizational operations rests on a set of assumptions. Once those assumptions are spelled out and confronted with the evidence, it is clear that many -- maybe all -- do not hold in most organizations
3. The evidence for the effectiveness of individual pay for performance is mixed, at best -- not because pay systems don't motivate behavior, but more frequently, because such systems effectively motivate the wrong behavior
I think intrinsically, we all know that money can at best be only a hygiene factor, for driving higher performance we all need that higher, lofty goal which will motivate us. A classic example is of our armed forces, who may not be paid that well, but nevertheless they do a great job.
I am also not getting into the issue of forced rankings, a major contributor to pay for performance decisions, which deeply flawed, still continue to be used for lack of a real alternative.
What is required for organizations, is to really assess their incentive systems & see if they are motivating the right behaviors. Also needed are interventions in creating & sustaining a proper organization culture & providing the right leadership capabilities to manage the workforce.
Here are some of the reasons he gives
1. 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
2. A rating based system actually encourages a manager to give less frequent performance feedback to employees preventing real-time learning
3. Having a reward system based on the faulty premise that financial incentives improve performance, we are undermining powerful intrinsic employee motivation towards achieving our mission
4. There's no evidence that convinces me that a performance rating system actually improves performance
The last point is very pertinent to note, in fact I happened to read the very same point by Jeffrey Pfeffer in his testimony to Congress about Evidence-Based Practices. Prof. Pfeffer notes some interesting points which point to what Andy has said above.
1. Mere prevalence or persistence of some management practice is not evidence that it works
2. The idea that individual pay for performance will enhance organizational operations rests on a set of assumptions. Once those assumptions are spelled out and confronted with the evidence, it is clear that many -- maybe all -- do not hold in most organizations
3. The evidence for the effectiveness of individual pay for performance is mixed, at best -- not because pay systems don't motivate behavior, but more frequently, because such systems effectively motivate the wrong behavior
I think intrinsically, we all know that money can at best be only a hygiene factor, for driving higher performance we all need that higher, lofty goal which will motivate us. A classic example is of our armed forces, who may not be paid that well, but nevertheless they do a great job.
I am also not getting into the issue of forced rankings, a major contributor to pay for performance decisions, which deeply flawed, still continue to be used for lack of a real alternative.
What is required for organizations, is to really assess their incentive systems & see if they are motivating the right behaviors. Also needed are interventions in creating & sustaining a proper organization culture & providing the right leadership capabilities to manage the workforce.
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