“Most merit-pay systems share 2 attributes: they absorb vast amounts of management time and make most people unhappy.” Creating winners and losers is counter-productive…”


The following information was presented by James R.Crow at the KMWorld conference in October 2001. At the time, it highlighted why so many knowledge management systems fail. These days, it’s introducing social media to your organisation that faces the same old obstacles.

What do the following systems have in common:?

  • Performance appraisals
  • Reward and recognition
  • Rankings
  • Contests
  • Quotas
  • Management by Objectives (MBOs)

They are all popular programmes used by management in the belief they will improve performance. They also create winners and losers, which is counter-productive to team work and makes it difficult for any knowledge management system to be effective.

The Performance Appraisal

Theory Reality
  • Reward exceptional performers
  • Identify poor performers
  • Determine pay rates
  • Feedback on job performance
  • Creates an internally competitive system
  • Takes focus away from the customer
  • Measures most recent performance
  • People similar to the appraiser tend to receive higher appraisals

Reward and Recognition

Theory Reality
  • Good performance should be rewarded
  • Bad performance should be punished
  • Motivate employees by tying pay to performance
  • Selection process can cause conflict within the group
  • Money is not a motivator, it is at best a satisfier
  • Any positive impact on performance is short-lived

Contests, Rankings, Incentives

Theory Reality
  • We reside in a economy which is based on and benefits from competition
  • We will benefit as an organisation by making competition the way we do business internally
  • Creates winners and losers – and there are always more losers than winners
  • Ignores (and can damage) the interdepencies within and between internal systems

Quotas

Theory Reality
  • Quotas increase sales because people will strive to meet them
  • Without a quota, nobody will sell or produce anything
  • Sales tend to peak at the end of the month/ quarter/ year
  • Sales reps tend to limit sales to slightly above the quota and use excess as cushion for next period

The objective should always be for the organisation to win, not component parts.
Management needs to move its thinking from individuals to systems and processes

Will we ever learn?

“Desipte the evident popularity of this practice, the problems with individual merit pay are numerous and well documented. It has been shown to undermine team work, encourage employees to focus on the short term and lead people to link compensation to political skills and ingratiating personalities rather than to performance.”
– Jeffrey Pfeffer, “Six Dangerous Myths About Pay”, Harvard Business Review, Spring 1998

References:

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