In The Paradox of Performance Pay, Allan Hawke shows how it has clearly led to decreases in organizational performance.
Peter Scholtes, who has researched and written extensively about performance, appraisal and pay, argues that such a performance ”management” regime is inherently the wrong thing to do because three faults are common to all variations on the theme:
- It doesn’t work.
- It’s wrong to focus only on individuals or groups, because most opportunities for improvement involve systems, processes and technology.
- Performance ”management” is judgment, not feedback; it’s a hierarchical dynamic.
W. Edwards Deming called annual performance appraisals one of the five deadly diseases of management. Performance ratings are nothing more than a lottery, Deming said in 1984. This pertains to all levels in the organization.
ANNUAL RATING OF PERFORMANCE
- Arbitrary and unjust system
- Demoralizing to employees
- Nourishes short-term performance
- Annihilates team work, encourages fear.
Perhaps the performance appraisal treadmill is keeping organizations from testing out and adopting better management models for the networked economy. How could anyone possibly show progress in 365 days? It also makes one wonder about the effectiveness of publicly-traded companies that get a “performance appraisal” from the market every quarter.
Performance appraisals are like academic grades and keep the focus on the individual. In the collaborative, social enterprise this is counter-productive. There is no place for this practice in doing net work. In today’s enterprise, work is learning and learning is the work, and it has to be done cooperatively. The wirearchy organizing principle provides an excellent starting point to get off this treadmill:
a dynamic two-way flow of power and authority based on information, knowledge, trust and credibility, enabled by interconnected people and technology.