Unchallenged assumption #5 Individual performance management

Individual performance management can create incentives that put people in conflict with the goals of their team, which can lead to friction. What can be done?

A group of office workers walk down a path through forrest. Some are tempted off the path by some treasures.

In the introductory post for this series, I introduced the idea of unchallenged assumptions in organisations that had become so accepted as the way work is done that they become tough to challenge, even when doing so would be very impactful:

The unchallenged assumptions I had identified were:

1. Hierarchical reporting structure.

2. Functional separation.

3. Projects are the means of doing work.

4. Project-based funding.

5. Individual performance management.

6. Managers hire for their area.

7. Categorical organisation of strategy.

There are others, and I encourage you to share your examples in the comments, but these were the most prevalent ones I’ve experienced.

Individual performance management

Performance appraisals, often known as individual performance management, have existed for most of the 20th century. They have roots in several influential work approaches. These include the work of Taylor (of ‘Taylorism’ infamy), Drucker and others. Most of these ideas have evolved to a place that is a long way from the ideas underpinning this approach’s presumed efficacy.

Drucker and others espoused Management by Objectives, which involved close alignment with the work being done and performance management. In the late 90s, management consultancies popularised templates for managing performance, typically rating individuals' performance against objectives and ratings of their compliance with organisational values or desirable behaviours. Human resource departments in enterprise organisations adopted the template approach almost universally.

While framed as focused on objectives, these templates were less directly aligned in practice as the process for managing individual performance was now separated from managing objectives, i.e., from managing work. Keeping the two synchronised became another chore for managers and employees, reducing the quality. Almost universally you will see managers have given up keeping the work goals synchronised with what is captured in individual performance templates. Even if synchronisation was achieved, the value of this approach to managing motivation remains questionable.

The belief is that individual performance management is a helpful incentive for performance, which translates to organisational performance. As I covered in the following post, there are scenarios where individual performance management may work against teamwork and thus undermine company objectives, affecting the organisation’s performance:

The assumption

Individual Performance management is commonly seen as an antidote to:

1. the perceived issue of freeloading.

2. a worry of being unable to remove an employee deemed ‘underperforming’.

A concern that drives the attachment to individual performance management practices, such as employee ratings, is the fear of freeloaders. The idea of collective incentives, an option we will cover under the ‘Alternatives’ section, such as those based on the growth in revenue or movement in share price, is feared that it will give rise to those who do less and still benefit. Human feelings of justice and fairness give rise to a strong desire to do something about this ‘risk’, whether there’s evidence that this is a good fix or not.

The fear of being unable to act on underperforming employees is an excellent example of a failure of imagination among leadership and human resource departments. Industrial Relations law has also influenced the feeling that this is necessary and that the only solution involves calibrations, force-fitting to bell curves, annual reviews, and bonus allocations. This is because documenting these things has become expected evidence in court cases involving industrial disputes.

The alternatives

Financial incentives are only one factor; various factors influence motivation. Monetary incentives can be attached to collective organisational measures, both short-term and long-term. These might be sales targets, revenue, share price movements or other elements.

Individual performance management ratings are often applied as multipliers (or diminishers) to more universal calculations of bonuses, such as achieving a shared goal across the department or company. The most common examples of these shared goals used to determine bonus eligibility are financial targets, such as meeting a revenue threshold. This shared goal is itself questionable for software product teams as revenue is likely the consequence of providing valuable services, which we probably should be incentivising, rather than the revenue that could be achieved by doing the right thing but also by making some short-term decisions that are destructive to the company.

The alternative is to focus on collective measures and other incentives and motivators that focus on indicators of progress towards value. In his book Drive, Daniel Pink discusses the intrinsic motivators of Autonomy, Mastery, and Purpose. The reality is that there is a rich range of things that motivate people to do their best work, and organisations wield blunt instruments more often than those that require ongoing cultivation.

When moving away from individual performance management is not an option, I’ve encouraged managers to follow the Human Resources (HR) mandated format, but instead of agreeing on objectives with the individual that quickly fall out of date with the actual work, focus on the desirable behaviours that support the goals and are in tune with the company values.

This is both usefully assessable and more enduring than tracking work objectives that change at a different cadence to when performance management activities occur. HR is most focused on whether there is a means for assessment and for applying the processes affecting things important to employees, such as remuneration adjustments (such processes add to the inertia for making change).

More on individual performance management

Recently, a colleague and I launched the inaugural ‘CTO Life Line’, a livestream conversation on issues relevant to CTOs and other technology leaders. The topic for the first session was ‘Managing individual and team performance’:

https://www.linkedin.com/events/ctolifeline-maximisingindividua7163727989841620994/comments/

What is your view on individual performance management? What is the approach taken at your workplace? What, if anything, would you like to change? Share your views in the comments.