Five dangerous half-truths about evaluation of performance and compensation plans

by on June 3, 2009 · 0 Comment POSTED IN: HR Info Center

Does your evaluation of performance meet your corporate goals?

Most HR people would say that’s a tough question to answer. After all, reliable evidence on compensation plans and evaluation of performance effectiveness is hard to come by. That’s according to Jeff Pfeffer and Bob Sutton, two Stanford professors and authors of Hard Facts, Dangerous Half- Truths & Total Nonsense: Profiting from Evidence-Based Management. Without hard data, senior executives are often left relying on untested assumptions, preconceived notions and experience-based biases about what works or what “must” or “should” work in evaluation of performance.

Possible Consequences For Poor Evaluation Of Performance

These notions usually make a lot of sense, but often amount to “half truths” that can leave execs scratching their heads wondering why a comp plan isn’t getting the results they want.

Possible consequences:

  • Turnover.
  • Star performers leave, but mediocre performers stick around.

  • People do the minimum.
  • The next generation of potential stars get discouraged and “retire in place.”

  • Unexpected side effects.
  • People’s efforts don’t seem aligned with company goals.

Half Truths Behind Evaluation Of Performance And Compensation
So what are these half-truths and assumptions? Pfeffer and Sutton say:

  1. People are motivated by money
  2. To a degree, employees are (especially lack of money). But different people are motivated by different things. Some are driven by opportunities to achieve tough goals, innovate and build a business. Others are motivated by teamwork and their friendships with co-workers. And still others just want to collect a paycheck and get home to their families.

    Key: Identify an employee’s biggest motivation. If it’s money, then you know how to motivate them. But what if comp is second or third and what they really live for is individual attention from an experienced mentor. In that case, give them that (if possible) and make sure the comp plan doesn’t demotivate them.
    (That is, companies can and have overplayed the non-monetary compensation card.)

  3. Reliably and accurately measured individual evaluation of performance.
  4. Sometimes, yes, you can measure individual performance. But it’s usually not easy. Some issues: Does an individual evaluation of performance include subjective judgments? Supervisors may use differ ing scales for things such as “cooperativeness” and “attitude.” If you decide to get completely scientific in your measurements, then what about human “intangibles” necessary for success?

    Key: When you’re reading performance reviews to determine raises, recognize the difference between reliable measurements and subjective (thus less reliable) ones.
    Make sure that those measurements also accurately reflect what’s necessary for job success.

  5. Performance is a solo activity.
  6. Managers no doubt want individuals to take responsibility for their success or failure. At the same time, people may be dependent on others for success – the information people give them (including the ability of people to articulate problems to them), their willingness to learn, the industry, the larger economy, corporate priorities and organization competence, and just plain dumb luck.

    Keys: Make sure your evaluation of performance and comp system doesn’t “pretend” people aren’t dependent on outside issues.

  7. “What worked in my last company will work here.”
  8. Could be. But given the difficulties mentioned in the previous half-truths, how likely is a new comp system based on a different company likely to work? Is the industry the same? How much time has passed? Is the market different? Is there real evidence that previous comp system delivered the results cited, or were there other factors involved?
    Key: Before revamping a comp system, conduct a small test. That may give you valuable feedback and allow you to adjust the system to reduce unwanted side effects.

  9. Consultants can figure evaluation of performance out for us.
  10. Some consultants deliver. But Pfeffer and Sutton cite an example that should send a chill down the spine of most HR pros. A senior HR consultant admitted that his company pushes pay-for-performance plans, even though the programs almost always fail. That’s because consultants get paid for advice (and sometimes to implement the plan), but not actual business results. And even worse: Since the plan doesn’t work, the consulting firm gets more fees by trying to fix the plan.

    Note: Whatever system you use, it won’t work without managing people’s expectations. Based on regular supervisory feedback, workers should know “about” how much of a raise to expect come raise time.

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