Should Salaries and Incentives be linked with Performance?

Amarjyoti Krishnan
 


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When the spiritual teacher and his disciples began their evening meditation, the cat who lived in the monastery made such noise that it distracted them. So the teacher ordered that the cat be tied up during the evening practice. Years later, when the teacher died, the cat continued to be tied up during the meditation session. And when the cat eventually died, another cat was brought to the monastery and tied up. Centuries later, learned descendants of the spiritual teacher wrote scholarly treatises about the religious significance of tying up a cat for meditation practice.

The traditional view in organizations has always been to link Salaries and incentives to Performance. And I wanted to question this tradition. Every good company in this world has a performance evaluation (P. E. ) system. Salaries are linked to this P. E. . Even incentives such as extra training, monetary bonuses, freebies are given to the best performers. Joel Spolsky confirmed my theory that P. E. should not be conducted.

In April,2000 Joel wrote a beautiful article - Incentive Pay Considered Harmful. I visit Joel's site, joelonsoftware.com, regularly and love reading his articles. These are the main points highlighted in this wonderful article -

Treating your rocket scientist employees as if they were still in kindergarten is not an isolated phenomenon. Almost every company has some kind of incentive program that is insulting and demeaning. Most Performance review programs are copied from a Dilbertesque management book where the first stage is an “anonymous" upward reviews, followed by optional “self-evaluation" forms. Finally there is a numerical score, in lots of non-scalar categories like “works well with others", from 1-5, where the only possible scores were actually 3 or 4.

The system never took into account the fact that people have different and unique talents, all of which are needed for a team to work well such as a person who motivates everyone else when the going got tough or someone who is incredibly insightful strategically Negative reviews, obviously, have a devastating effect on morale. In fact, giving somebody a review that is positive, but not as positive as that person expected, also has a negative effect on morale.

The effect of reviews on morale is lopsided: while negative reviews hurt morale a lot, positive reviews have no effect on morale or productivity. Most people will be disappointed by their reviews because most people think that they do pretty good work (even if they don't). It's just a little trick our minds play on us to keep life bearable. Incentives (or bribes) simply can't work in the workplace. It leads to teamicide: the inadvertent destruction of jelled teams. Giving somebody positive reinforcement (such as stupid company ceremonies where people get plaques) implies that they only did it for the lucite plaque; it implies that they are not independent enough to work unless they are going to get a cookie; and it's insulting and demeaning. For 5 years I believed very word of what Joel said. I even made sure that we do not have any stupid company ceremonies or have any performance evaluations in Poornam. I even sat down to write why Performance Evaluation and Incentives are bad. I was a lot like the learned descendants of the spiritual teacher who wrote scholarly treatises about the religious significance of tying up a cat for meditation practice. I never questioned Joel's views.

Today I firmly believe that Performance Evaluations is a must and it must be linked to salaries and incentives.

Consider an Athletics Coach not timing his sprinters. He just tells them to run everyday. It would be a matter of time before the sprinters would get tired and would stop running. So what does he do. He sets the goal. If you are a 100 meters sprinter then first and foremost you are told that if you have to be the best in the world you have to beat 9.78 seconds. i. e. first define the target or set the expectations. Now the coach starts to time the sprints and evaluates his technique, speed, capability and so on. And after each evaluation the coach works out on ways to improve the performance further. This is exactly why Performance Evaluation should be done.

Let's take another example. Consider an automobile company which makes cars. If they decide to take out a new model and if it is a one bad car, even if they made a million more in the same technique they would not become the best car makers. They will however becomes experts in making bad cars. So what should they do. First, they define what a “Good Car" is. Then they make it and see how the customer reviews its performance. Based on this evaluation from the customers the Car Maker improves upon the cars and slowly they become experts.

In Management there is a beautiful concept called “PDCA" cycle Plan, Do, Check, Act. Performance evaluations work on similar systems and the target of an P. E. system is continual improvement of the organization and the individual.

Most Performance Evaluation Systems are based on this principle of setting the expectations and then evaluating the progress.

Treating your rocket scientist employees as if they were still in kindergarten is not an isolated phenomenon. Almost every company has some kind of incentive program that is insulting and demeaning. Even a Rocket Scientist needs to know his expectations when he goes to work. Infact a great rocket scientist once told me that all rocket scientists are earthlings like you and me. They wear their pants just like we do, one leg at a time. If telling a rocket scientist or any other professional his work expectations is wrong, then P. E. is also wrong. If gauging the work of the person based on the expectations is wrong, then certainly the incentive system is insulting.

Most Performance review programs are copied from a Dilbertesque management book where the first stage is an “anonymous" upward reviews, followed by optional “self-evaluation" forms. Finally there is a numerical score, in lots of non-scalar categories like “works well with others", from 1-5, where the only possible scores were actually 3 or 4.

I fully agree that rating between 1-5 or 1-100 is a silly thing. One of the best things I like about the software industry is the fact that everything is represented in binary. i. e. 0 or 1. In my view all evaluations should be similar. The only two possible scores are 0 (no) or 1(yes). e. g. How is his quality of code? - 0 if it is bad 1 if it is good.

For many this concept may seem harsh. In my entire career I have seen that we either win or loose. i. e. 1 or 0 is a reality of life. When I used to handle the sales in our company, many a times I had faced a situation where Poornam/Bobcares would be made to compete with 3 or 4 other providers. In the beginning I used to think “Oh, we just missed it. Our quote was second best, we did well". Then I realized being second best does not allow us to grow or have the best people. One has to be win or loose.

The system never took into account the fact that people have different and unique talents, all of which are needed for a team to work well such as a person who motivates everyone else when the going got tough or someone who is incredibly insightful strategically. Let's take the example of the Athletics Coach again. Suppose he was training a team for a 4x100 meters relay. Would it help if 3 were great sprinters and the forth was slow but did a great job by keeping the others happy by singing. I guess that team would never make it to the top. Maybe the coach could hire a singer to keep them happy.

It is true that gauging just one quality is bad. For example if “lines of code" is the only criterion for judging a person then the system is wrong not the concept. One has to review all the qualities that are needed for the job.

Negative reviews, obviously, have a devastating effect on morale. In fact, giving somebody a review that is positive, but not as positive as that person expected, also has a negative effect on morale.

The effect of reviews on morale is lopsided: while negative reviews hurt morale a lot, positive reviews have no effect on morale or productivity. Most people will be disappointed by their reviews because most people think that they do pretty good work (even if they don't). It's just a little trick our minds play on us to keep life bearable. Performance Evaluations would definitely make the under performers sad. They have two choices - they can either quit or improve. If they quit it is good for the organization. And if they improve it is great for the organization as well as the individual.

Incentives (or bribes) simply can't work in the workplace. It leads to teamicide: the inadvertent destruction of jelled teams. Giving somebody positive reinforcement (such as stupid company ceremonies where people get plaques) implies that they only did it for the lucite plaque; it implies that they are not independent enough to work unless they are going to get a cookie; and it's insulting and demeaning. I looked up in the dictionary and found out the meaning of the word - Bribe.

bribe

n : payment made to a person in a position of trust to corrupt

his judgment Bribe Bribe, v. i.

1. To commit robbery or theft. [Obs. ]

[1913 Webster]

2. To give a bribe to a person; to pervert the judgment or

corrupt the action of a person in a position of trust, by

some gift or promise.

[1913 Webster]

Now is giving an incentive a bribe. Definitely Not. No organization gives an incentive for doing an illegal work. Also, if incentives are wrong then I guess even salaries should be considered as a bribe. “You work and for that work I'll give you money at the end of the month ;-)".

Incentives are given only to the best to perform better. And the only only way to guage this performance is by performance evaluations.

Many a times people do feel that company ceremonies are stupid because they get plaques. Well one reason for it the way the reward is seen. For many the plaque is just an object which does not cost a lot. I am sure if the reward is a million dollars these same people would want company ceremonies very hour. In the Olympics the top honor is just a piece of money which anybody can buy. . . . . But yet for many athletes an Olympic Gold is the very purpose of their life.

Amarjyoti Krishnan heads bobcares.com, a tech support company for webhosts and ISPs. He is the co-founder of Poornam Info Vision Ltd. , a software and IT services company which specializes in Linux based solutions for Webhosts and ISPs. Poornam Info Vision is an ISO 9001:2000 certified company with a team of over 100 engineers.

Amarjyoti is a Computer Engineer based in India and has over 7 years of experience in the hosting industry. He has spoken and written extensively on the subject. His articles have been published both online as well as in print in magazines.

http://poornam.com
http://bobcares.com
http://amarjyoti.com

(1965)

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