A business introduces performance management to get more of the right work. Targets are set, ratings are given, reviews are held. A year later, too often, the targets are being hit on paper, morale is down and the best people are quietly looking elsewhere.
Measuring performance isn't the mistake. The way it is usually done is. Here are six ways performance management backfires, what the evidence says about each, and what to do instead.
1. The measure becomes the goal
In 1975 the economist Charles Goodhart observed that a measure used to control behaviour tends to stop measuring what it used to. The anthropologist Marilyn Strathern later put it more memorably: when a measure becomes a target, it ceases to be a good measure.
Set a target for calls made and you get more calls, not more sales. Reward debts collected and some will be collected in ways that cost you the customer. In 2016 Wells Fargo, one of America's largest banks, was fined after staff under heavy sales targets opened millions of accounts customers had never asked for. The targets made it look like the easiest way to keep a job.
2. Ratings measure the rater
Annual ratings assume a manager can place performance accurately on a scale. Research says otherwise. A large study of managers' ratings published in 2000 by Steven Scullen, Michael Mount and Maynard Goff found that more of the variation in ratings came from the quirks of the people doing the rating than from the performance of the people being rated.
When a rating says more about the rater than the rated, people notice. Ratings feel unfair, because often they are, and people learn to please the rater rather than serve the customer.
3. Feedback can make things worse
In a landmark review of feedback research, Avraham Kluger and Angelo DeNisi found that in more than a third of cases, feedback made performance worse. The damage was greatest when feedback pulled attention away from the task and towards the person: their worth, their standing, their score.
A rating on a form is exactly that kind of feedback. People remember the number and forget the advice.
4. It blames people for the system
W. Edwards Deming, whose ideas helped shape Japanese quality management, reckoned that around 94 percent of the trouble in an organisation comes from the system rather than the individual. Late deliveries, errors and complaints usually trace back to how the work is designed, resourced and managed.
Rating people for problems the system creates teaches them to hide problems. Deming's advice was blunt: drive out fear, and abolish the annual merit rating.
5. Once a year is too late
An annual review asks a manager to remember twelve months, and an employee to wait twelve months to hear about something they could have fixed in a week. By then it's a verdict, not help. That is why companies such as Adobe, which dropped annual reviews in 2012, and Deloitte, which redesigned its approach in 2015, moved to frequent, short conversations about the work in front of people.
6. Rewards can crowd out the reason
Tying pay tightly to targets seems like common sense. But a review of more than a hundred experiments by Edward Deci, Richard Koestner and Richard Ryan found that tangible rewards made conditional on doing a task tend to reduce people's own interest in work they would otherwise find worthwhile. Pay people fairly, by all means. Be careful about turning every part of the job into a transaction.
What works instead
- Measure few things, in pairs. Balance every quantity with a quality: sales and repeat customers, speed and errors.
- Measure the process, not only the result. Track the levers people control, and fix the process when the numbers drift.
- Talk often, briefly, about the work. A short monthly, or even weekly, conversation beats an annual verdict.
- Look at the system first. When results disappoint, ask what in the way the work is designed made that outcome likely.
- Separate growth from pay. Development conversations go better when they aren't also salary negotiations.
- Agree targets, don't impose them. People commit to goals they helped set and understand.
Measure to learn, not to judge, and performance improves.
Done this way, performance management stops being something done to people and becomes the way a business learns. It is how we set up KPIs, reviews and continuous improvement for the businesses we work with.
Sources and further reading
- Charles Goodhart, "Problems of Monetary Management: The U.K. Experience", Papers in Monetary Economics, Reserve Bank of Australia (1975).
- Marilyn Strathern, "'Improving ratings': audit in the British University system", European Review 5(3), 1997.
- Steven E. Scullen, Michael K. Mount and Maynard Goff, "Understanding the Latent Structure of Job Performance Ratings", Journal of Applied Psychology 85(6), 2000.
- Avraham N. Kluger and Angelo DeNisi, "The Effects of Feedback Interventions on Performance", Psychological Bulletin 119(2), 1996.
- W. Edwards Deming, Out of the Crisis (MIT Press, 1986).
- Marcus Buckingham and Ashley Goodall, "Reinventing Performance Management", Harvard Business Review (April 2015).
- Edward L. Deci, Richard Koestner and Richard M. Ryan, "A Meta-Analytic Review of Experiments Examining the Effects of Extrinsic Rewards on Intrinsic Motivation", Psychological Bulletin 125(6), 1999.
