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Bacal & Associates 
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Winnipeg, Manitoba 
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Performance Appraisal 

Why Employee Ranking Systems Lead To Disaster 

In our white paper entitled "Performance Management -- Why Doesn't It Work we discuss some reasons why most performance appraisal systems fail to add value to organizations. Despite our work, and the work of more illustrious experts such as Deming & Scholtes, most people believe in the usefulness of performance management. In a way that's understandable, since it CAN succeed in the hands of an excellent manager, and the importance of performance management has been stressed for decades in much of the management literature. 

What is more perplexing is the continued use of ranking methods to evaluate employees. Ranking employees, particularly for determining promotion, and pay, or even for providing developmental feedback simply makes no sense. It is not a neutral process, or just a costly process--it is a recipe for disaster. This month we look at why this is so. (Next month we will take on the use of rating systems). 

Rankings In Appraisal 

The core element of the use of rankings is that employees are compared to each other, and given some number that supposedly indicates whether they are better than, about the same, or less effective than their colleagues. That ranking is often used to determine who will receive pay raises from a limited pool of money, or for other decision-making processes. 

The criteria for ranking can range from specific and objective to totally fuzzy and subjective. For example, it is possible to rank sales staff objectively, in terms of the sales generated in a year, and identify the top salesperson, the next best, down to the bottom based on some reasonably meaningful numbers. Or, one can rank people on a set of fuzzy criteria such as "gets along well with team members".  

The Arguments In Favour 

There are only a few arguments to support the use of rankings in any plausible way. The major argument appears to be that ranking employees versus each other creates a situation where competition can be encouraged--the assumption being that if staff compete with each other they will push each other to greater productivity.  

The second argument is more administrative. Organizations that rely on merit assessments for decision-making on pay levels and promotions need to decide who will get what. Proponents of ranking systems suggest that rewards for productivity should go to the top performers as defined by comparison with their peers. So a ranking system allows organizations to decide to reward the "top 25%" or the "top 10%". On the surface this makes some sense. Given a limited pool of rewards, shouldn't the rewards go to the top performers in the organization? We'll see. 

The Arguments Against 

Let's counter the administrative argument first. We want to reward people for the value they contribute to the organization (however that might be defined). The catch is that a ranking system doesn't do that. It rewards for being better than one's peers, and that's a very different thing. The easiest way to show this is to look at an example. We are going to use a sales example with rankings by total yearly sales, because that's a best case scenario, since we can measure sales objectively. If ranking systems don't make sense there when we have good data to guide the rankings, they aren't going to work with more fuzzy ranking criteria. 

Let's take a small group of five people with sales figures as follows: 

Bob $25,001 
Ken $25,000 
Mary $24,000 
Barb $23,000 
Fred $20,000 

Our system calls for rewarding the top 20% (one of the staff) with a significant pay raise, while giving a small "average" reward to the middle 60%, and giving no reward at all for the person at the bottom. 

Bob gets a big raise while Ken, Mary and Barb get a little, and Fred receives nothing. Does this make sense? No. 

If we look at the figures, we see that we are rewarding Bob for his ability to be one dollar better than Ken. In fact the difference among all of the salespeople is small...and this isn't surprising since we assume a reasonable job selection process where only the best are hired and retained. So what we are doing here is making important decisions based on almost no differences in production because our "system" specifies that we must reward the top 20% with no room to evaluate the absolute contributions. 

Apart from the fairness of this, what effect might it have on the performance of Ken and the others?  

But here's the real kicker. Let's look at the value that each of these people contribute to the organization. Let's assume that each of the sales staff draws a base salary of $30,000 a year. When we look at the absolute value of each staff member, we see that NONE of them are adding value. They are costing the company more than they are earning. Under a strict ranking system we would still be obligated to pay that top performer his raise, even though Ken is simply the best of the really lousy! 

Ranking systems don't assess value and contribution, even in a best case scenario. 

The other argument put forth is that ranking systems encourage competition, and that is probably true. The error with this argument is that it assumes that competition will lead to increased productivity, and increased success for the larger organization. This is rarely the case. Why? 

Quite simply, we tend to get the kinds of behaviour we reward. We can set up a system with good intentions, but unintentionally encourage behaviour and actions we don't want. Ranking systems (and related reward systems) allow for two ways to "win" extra rewards. The first, and the one we would like to see most is for people to work harder, better and smarter and become more productive. By being more productive they can vault over their lesser performing colleagues to receive additional rewards. The second possibility is to contribute to degrading the performance of those competing for the same reward. An employee can vault into the upper echelons of ranked performance by helping others do worse. 

This is certainly NOT what we want.  

While it is only the most cut-throat employees who will deliberately attempt to reduce the effectiveness of colleagues, the use of ranking and related rewards does push even "nice" people into doing things damaging to the organization. If you reward based on relative ranks, you encourage: 

hoarding of resources so they are "there when needed" 
with-holding of information 
reduction of team-work and helping others 
and generally self-centred and self-serving actions. 

Other Considerations 

1) While ranking may seem to provide an objective means of evaluating (since it can be used to assign numbers to people), the rankings themselves are only as good as the criteria used for ranking. They can be extremely deceptive, making it appear that there is an objective valid evaluation process going on when, in fact, there isn't. 

2) The value of an employee RELATIVE TO PEERS, is irrelevant to the success of any organization. It matters not a bit whether a person is the best or the worst. What does matter is their absolute contribution to the goals of the organization. Ranking doesn't improve organizations. It only classifies people and does not reflect the actual value of employees. 

3) As a form of feedback ranking is virtually useless. If our goal is to develop people, we need to provide specific concrete feedback. Informing someone that they ranked in the top (or bottom) twenty-five percent on something may send some sort of message, but tells the recipient virtually nothing about how to improve. 
4) Ranking can be devastating to the morale and trust of an organization. Because it is difficult to rank objectively, employees will almost always disagree with a ranking that places them anywhere but in the top percent in the organization. Employees often perceive the process as unfair and arbitrary. Research has shown that the large majority of people believe they are above average in job performance. Ranking guarantees disagreement. 

5) Finally there is the issue of comparisons. In today's work world, even people with the same job titles in the same "shop" may be doing very different jobs and contributing in very different ways. How is it possible to compare someone who functions as an informal workplace leader to someone who is technically talented but interpersonally unskilled? Both contribute in their own way. It really is like comparing apples and oranges.  

The Disaster Part 

If some lunatic was to ask you to create an organization full of dissent, back-biting, resource hoarding, secretiveness, lack of trust, etc, you probably would choose to use a ranking format for performance management. You would also have an organization that wouldn't know who was contributing to the company in any absolute terms and an organization that would have considerable difficulty providing developmental feedback to staff for the purposes of improving performance. 

As a final note, somewhere on this planet there are people who use rankings and swear by them. It may be they aren't looking in the right place to evaluate the overall effects of such a strategy. In rare cases, it may be that they are in fact building positive outcomes. As with many performance management techniques, however, where you find a manager succeeding with a ranking system, we guarantee you will find a manager who would succeed with scribbling performance appraisals on toilet paper. In other words, in spite of the system!

     

Over the last while our clients have requested that we do more conference speaking and keynotes. One reason is that we provide a different perspective on a number of subjects which has best been describes at pointing out that the "emperor is stark naked". Too many fads, too many abuses of management and training  techniques,  and we are particularly good at highlighting myths in the common wisdom.   
   
If you are looking for something different for your conference or get together, let us know. We promise a dynamic, energizing and thought provoking presentation that will get people's attention, and get people talking.   

We custom design our presentations but here are just a few sample topics:   
  

Why Performance Management Fails (and what to do about it)    
Training Scams That Trainers Play   
Why Most Training is A Bad Investment    
Cooperative Communication = The Core Team Skill    
Defusing Hostile Customers 

Teams & Personal Responsibility    
Dealing With Difficult Parents (for educators)    
How To Make Strategic Planning Work 

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Four Decision Modes For Teams & Groups 

One of the first steps a work team or group should make is to determine how decisions will be made by the group and members of the group. We are going to look at four different ways of coming to decisions. 

Overview 

Decision-making is a core process in the workplace. Decision-making processes that are ineffective, or inappropriate to the kinds of decisions made can result in higher stress levels,negative perceptions of the workplace, and in the long term, can destroy the ability of work teams to work effectively in a coordinated manner. 

Before we discuss the strengths and weaknesses of the four modes of decision-making we should point out that it is probably NOT desirable for a team or group to make decision using only a single mode, regardless of type of decision. Some decisions need the involvement of everyone; some can benefit from involvement of everyone, but it may not be cost-effective to do so; and some decisions simply should not involve or require input from others. 

Groups need to decide WHEN and HOW decisions are to be made, matching  modes with types of decision. 

As a starting point consider these kinds of decision. 

Decisions that: 

affect all workgroup members (eg. workplace policy, certain internal processes, larger organizational issues, some workgroup task allocations, deadlines) 
affect only a sub-set of workgroup members (eg. some project specific decisions) 
affect only one person (eg. day-to-day job decisions) 
fall under the mandated authority of the formal leader (eg. pay, performance appraisals, etc) 

No doubt you can identify other types of decision-making that may occur in your workplace. 

Decision-Making Modes 

There are four major modes of decision-making: 

Autocratic 
Democratic 
Unanimous 
Consensus. 

Each has advantages and disadvantages. 

Autocratic (or single decision-maker) 

Autocratic decisions are made by a single person,often the person that has a formal leadership role in the organization. Unfortunately, the name has a somewhat negative connotation, and brings forth the image of the iron-fisted "ruler" in the workplace. We prefer the term "single decision-maker". 

Advantages 

in many situations can be the fastest way to come to a decision 
removes the need for consultation when a number of group members may not want to be involved with the particular decision 

Disadvantages 

when the same person tends to make most decisions (as in the case with some formal leader situations, can result in poor decisions which can be costly in the long run 
tends to reduce innovation since few if any other staff are involved. 
can result in hard feelings from people who have a greater need and desire to be involved in workplace decisions. 

Appropriate When: 

the decision issue is one that affects one or only small number of people 
when a decision needs to be made immediately, and the cost of consultation may be too high for the importance of the issue. 
when the decision maker is the "recognized expert" on the issue and the above conditions hold. 

Democratic (Majority Rules) 

A second decision mode involves a majority rules situation. Decisions are made based on a formal or informal vote, usually preceded by an open discussion where pros and cons of different positions are discussed (or argued). 

Advantages 

less time consuming than seeking consensus or unanonymity. 
allows multiple views and opinions to be presented, thus increasing the chances that sometimes neglected factors are considered. 
provides a sense of involvement.  

Disadvantages 

Creates a Win-Lose situation for people whose ideas have been voted down 
Is an all or none proposition. A decision may be carried with a majority of 51%, leaving 49% of people unhappy. 
May involve people in the "voting" that will not be affected by the decision, or more importantly, are not in a position to make vote in an informed, knowledgable way. 

Appropriate When 

Staff on the "losing"side are not needed for implementation, or are unlikely to work to sabotage the decision 
there is a desire to discuss multiple ideas. 

Unanimity (Everyone Agrees) 

We can also make decisions only if all people involved in the decision agree. If only a single person disagrees the decision isn't "passed". As with a democratic process, the decision point is usually preceded by a discussion of competing ideas. 

Advantages 

Since everyone must agree, a decision made in this way is more likely than the modes above to be supported by everyone. 

Disadvantages 

Very difficult to get 100% agreement on any topic of importance. 
Can result in staff members (who are in the minority) feeling pressured to conform, since a single dissenting vote can result in a negative decision.  
Even when a unanimous decision is reached it may be a "false"agreement. 
Can be extremely time consuming, and because a single voice can prevent a decision, tends to generate status-quo type decisions 

Appropriate When: 

Time is not an issue 
The decision is either very important, personally to everyone involved, or is not very important at all 

Consensus 

Consensus decision-making is probably the most complex of the decision-making modes. In consensus mode the group attempts to come to a decision where all group members can accept and support the decision and/or group members can commit to the decision even though it may not be their preferred solution. Some people refer to a consensus process as one that creates an “Everyone can live with the result" conclusion. 

It differs from the democratic mode because it tries to eliminate the losers in the process. If the consensus process is done properly there is a lot of give and take, discussion and negotiation. 

Advantages 

Some suggest that consensus decision-making results in higher quality decisions. 
May seem a fairer process than other methods 

Disadvantages 

Can be a frustrating process 
Can also be a lengthy process since the negotiating/discussion component, while more likely to return a better decision, is also a time consuming one. 
Requires advanced interpersonal skills on the part of those involved so that discussion is collaborative and supportive. 
Because of the above, it may be advisable for group members to undergo training in collaborative decision-making and cooperative communication1 

Appropriate When 

Commitment to the decision is critical 
Time is not an issue 
Group members have the necessary skills to undertake the process properly. 
When the issue is of interest and concern to all (due to the time investment needed). 

Conclusion 

Despite what may be the current fad, no single mode of decision-making is "better"than the others for every situation. Is it really necessary to seek a unanimous decision on the placement of the new water cooler? Or does it make more sense to simply have one person make that decision? 

No mode of decision-making guarantees a good solution, although the more people that are involved, the more likely that a number of alternatives might be put forth for consideration. Regardless of mode used good decisions need to be based on: 

willingness of people to give up their positions and truly listen to others 
involvement of people who have the interest and knowledge needed to make decisions on the issue. Sometimes involving the wrong people, particularly those that have no knowledge of the issues, is very counter-productive, even under the guise of involvement. 
a climate where issues and ideas can be put on the table without fear of reprisal or embarrassment. 

We recommend that teams decide when and how the different modes will be used, probably using a consensus model.We also recommend that managers make it clear when and how they will make decisions, and try to be consistent in using the different modes. Remember good decisions are decisions where the mode of decision-making reflects the importance, specific issue and time lines of the situation. 

1Bacal & Associates offers a seminar entitled Cooperative Communication In The Workplace teachers staff how to interact in ways that are more likely to reduce unnecessary conflict and increase collaborative relationships in the workplace. 

As the editor of the Public Sector Manager (for six years) I would like to welcome you to the online version of our publication. We are migrating our newsletter to the 'net, and phasing out our paper publication. While the current title of the newsletter reflects it's roots and origins, you will find that almost all of the content relates to all sectors: public, private, and not-for-profit. In the Spring of '98, we will be renaming the newsletter to reflect these editorial changes.   

The PSM newsletter will be available in two ways. It will be posted on the internet at our web site, or you can subscribe for free and receive it in your mailbox. Subscription is simple. Just send us an email requesting that you be placed on our PSM mailing list. However, to take advantage of this option you will need:   

An Internet browser (like Netscape or MS Explorer)...what you are using to read this now.   

You will also need a program that can unzip "zipped" archives.  

All you will need to do is save the "zip" file we send you via email, unzip it and view the newsletter file with your browser. We will send instructions along with the newsletter.   

This is our first pure internet version. We invite your comments about the readability or formatting, so we can continue to improve it over the next few months. Please e-mail your comments to rbacal@escape.ca.   

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Influencing Your Boss - Getting Heard Help Card 

As a thank you to our paid subscribers, we have included, in this month’s PSM  
Newsletter a copy of our newest help card: “Influencing Your Boss — Getting Heard.  
  
For organizations to benefit from new ideas and suggestions generated by those that work in it, two things need to happen. First, idea originators need to know how to present them to decision makers in ways that increase the likelihood of the ideas being listened to. While some people suggest that ideas are adopted based on “organizational politics” often it is the well presented ideas that prevail; sometimes to the detriment of better solutions.  

Second, decision-makers need to both encourage and foster new ideas, keeping an open mind to others’ suggestions.  
  
It is probably accurate to state that most organizations lose a considerable amount of good effective innovative ideas because decision-makers are not always open to new ideas, or idea originators lack some of the knowledge and skills needed to put them across in compelling ways.  
  
Our new help card entitled “Influencing The Boss — Getting Heard is designed to  
provide suggestions to help people present their ideas to decision-makers in a more  
effective way.  
  
If you are a manager you may find that the tips on the card help you communicate with your boss. Or, purchase copies to give to staff to help them communicate with you.  
  
If you aren’t a manager...well, we all have bosses, don’t we?  

If you have access to the internet you can preview this helpcard by clicking here while you are connected. You can order this help card by clicking here 

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Meetings On The Attack 

The issue won't go away. Lousy meetings, time wasting meetings, frustrating meetings, and as John Cleese called them "Meetings...Bloody Meetings". Despite a huge base training, videos, books, to help people conduct meetings more effectively, it seems like meetings are continuing to attack the organizational world. It seems like an organizational mutation of the time-eating disease. 

A recent front page story from USA Today highlights the problem. In it they cite research suggesting that meetings are continuing to increase in frequency. There is also research to support the notion that, in addition to increased time spent at meetings, stress levels have increased related to meeting attendance. A study by the American Management Association found that a top problem related to stress and frustration came from people who take up more time than necessary at meetings. 

And here's another whopping statistic. Today, and everyday about 17,000,000 meetings will take place in the USA, according to the 3M Meeting Network. 

In past articles (available at our web site at http://www.escape.ca/~rbacal/articles.htm) we have suggested some solution, but the truth is that the standard solutions (eg. agendas, focus, or other tricks like removing all the chairs) are either ignored or are having little effect. 

What's the explanation? 

There are two approaches to meeting improvement. The first, and most common is to set up some formal system of meeting management. That may include the standard elements, such as: 
setting up a proper agenda 
making material available beforehand 
enforcing time limits and punctuality 
having clear meeting goals 
removing chairs, using timers, limiting participation,etc 

That's the kind of approach one finds in most material on meeting management. Simple, practical solutions to meeting management problems. 

The second approach (which complements the first approach) is to focus on the interpersonal side and organization culture side of meeting management. The assumption underlying this is that unless people have the interpersonal skills, and attitudes that promote effective meetings, no amount of tweaking the way meetings are run is going to solve the issue. Do we really believe that the self-centred, interpersonally inept employee will stop rambling in meetings because we have a meeting agenda? Uh-Uh. Is the person who has a "hidden agenda" likely to avoid imposing it on others at a meeting because there are clear goals? Doubtful. 

What Do People Need To Conduct Proper Meetings 

You know the basic stuff (partly outlined above--agendas, etc). But interpersonally and culturally, what is needed? Here's a list to work towards: 

In order to have effective meetings participants need to: 

be able to speak and phrase things in ways that will be heard 
be able to address disagreements in a constructive way 
develop comfort in surfacing disagreements 
be able to state their postion clearly and succinctly 
be able to make short tight presentations to the group 
be able to use appropriate problem-solving skills 

In addition, some attitudinal components are important. Effective meeting participants tend to: 

respect others' rights to express themselves without interuption (unless meeting guidelines are violated). 
value listening as well as speaking 
understand that meetings have both a process and tasks with both being important. 

Undoubtedly there are many more. 

If our goal is to shorten meetings and make them more useful we need to look at both the formal systems (the way meetings are conducted), and the skills and attitudes that are going to help people stick to the better, formal rules of meeting conduct. BOTH approaches are needed to improve meetings. If new rules and procedures are instituted, by and large they will be ignored unless people have the skills to make them work. On the flip side, all the training and interpersonal skill development in the world isn't going to substitute for a formal system of meeting management that rewards and encourages the use of proper meeting skills. 

Some Suggestions: 

1. If you are going to make use of meeting management training and materials, make sure that there is time for meeting attendees to discuss the ideas and create their own guidelines about meeting behaviour. 

2. Make available appropriate training in interpersonal communication (such as our Conflict Prevention Through Cooperative Communication seminars). 

3. Develop a formal system of meeting management that recognizes that ignoring or violating meeting behaviour guidelines will be stopped immediately, and that ALL meeting participants have and share the obligation to enforce the guidelines (albeit in a cooperative, polite way). 

4. Imposing formal meeting management process without the involvement of meeting participants is often counter-productive.  Avoid doing so. 

If you are looking for a good internet resource on meeting management you might want to explore http://www.3m.com/meetingnetwork . This interesting site has some chat components, other meeting resources and tools, an ask the meeting advisor section and a really neat section on meeting nightmares. 

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