Performance Objectives & Employee Appraisals

There is a quite fascinating almost magical view of performance objectives at work. Usually they are attached in any form to money and this is exactly the problem. As soon as the compensation of an individual is determined by an indicator, the measurement of the indicator becomes distorted, similar like the Bohr principle that states that you can not measure an object without interfering with it.

Also, there is often the case where one measures one indicator that he believes will accurately represent a desired outcome, whereas the opposite is true, thus creating a dysfunctional system. There's a wonderful paper On the folly of rewarding A, while hoping for B that describes exactly that problem which can be observed in Sports, Consulting, Universities, Business and Government.

About Performance Measurement and Management there's an excellent book which I greatly recommend: Measuring and Managing Performance in Organizations (link to Amazon).

All in all, here are the problems I see with the current practice of establishing objectives and rewarding people in regard to the degree of achievements of those objectives:

• There is a considerate amount of effort that needs to go into the whole objective setting, monitoring & measurement process. This involves the discussion about the relevant objectives, how they can be quantified and measured, the monitoring of those indicators and the verification of those objectives.
• The objectives are usually set at the beginning of the year. What will happen is that other tasks, activities and projects, even if more important for the company (or department) will not be given attention, because they are not being rewarded. Even in the case that the initial objectives become obsolete, they are still pursued.
• The objectives take the character of an extraordinary achievement as the result of super human effort. Is this really the case? Do people really work above their capability and capacity in order to achieve them? Is that desired or even useful? Besides, people work within the capability of the system they belong to. It's not realistic to expect system capability improvements without changing the system itself - or is a miracle expected?
  
• People, as human beings, will naturally tend to make the numbers look good. This aspect can take many forms. For instance: short term results can be improved at the cost of mid term results; the calculation formula can be used or interpreted loosely; or the dirt can simply be swept under the rug or the eyes can just look the other way.

What should be done instead?

My opinion is that first and foremost, people should be rewarded by aggregated meaningful indicators, such as Return On Investment, or Return On Equity or Margin. Note that these are all relative profitability measures, which is what really counts for measuring business success.

Second, we can not discard the responsibility of managing people. That includes being informed and giving feedback. That being the case, the manager should be in an excellent position any time of the year, to make a sound judgment of the employee. I personally believe that the manager alone should not be given the power to solely rank an employee. I'm more in favor of a weighted 360 degree evaluation that takes in consideration the feedback of the employee, the manager, colleagues and customers.

About the appraisal of the employee, the normal evaluation systems have tens of parameters. It's almost necessary to have a training on how to understand and use each parameters. I would prefer less than ten parameters.

Finally, each employee should prepare and present a one page with the achievements of the last year. This page should not contain more than ten achievements. Small is beautiful, and less is more!