Performance Management Systems - Do They Work?

How often do we stop to review how effective our performance management systems are and if infact they have a causal relationship with high performance or in fact whether it’s part of our natural state for some people to perform better than others. There has been some great behavioural research done in the last 50 years that doesn’t appear to have made its way into the mainstream corporate workplace.

Dan Pink the author of “A Whole New Mind” has put a great read together around what really motivates us to perform and shows that some performance management frameworks in fact drive us to lose our innovation and de-motivate us from performing at our peak. Some of the experiments performed showed that in fact when people were offered monetary reward to complete a puzzle performed poorly compared to the test group which completed the puzzle out of what appeared to be pure interest and problem solving.

Then take the story of the encyclopaedia. In 1995 if we had been able to gaze in to the future we would not have predicted that Wikipedia would have outlasted MSN Encarta. Think about it – Microsoft hired professional writers and editors that were overseen by competent project managers. Microsoft was a very successful company and I am sure most of us would have predicted that their encyclopaedia was here to stay.  Yet Wikipedia has outlasted it, Wikipedia, where no-one is  getting paid to update the content, there is no-one project managing the work being done. People are giving up their own free time – some 20-30 hours a week - to update the content and it’s free to all of us!

What is going on in both of these cases?

The inherent view of human motivation where reward produces performance cannot explain this! Perhaps instead an inherent motivation in all of us to have fun, contribute, to innovate, to problem solve or, as Dan Pink puts it,we are “intrinsically motivated purpose maximisers” not only “extrinsically motivated profit maximisers.”

Does that mean we don’t have to pay people? Unfortunately it is not quite that simple. The starting place for building good relationships between employees and employers in the workplace has to address what we call base needs. This requires that our need for housing, clothes and food are taken care of as part of our base salary.  Any extras or perks should be incorporated into those salary arrangements. The point at which it becomes interesting – and sometimes complicated – is when performance management systems with potential for bonuses are introduced. Do these systems actually produce better performance leading to greater business results?

There is definitely some great research that shows that for repetitive tasks such as production lines in factories money will motivate people to perform faster and be a lot more productive. However, there is a lot of research - as demonstrated in the stories above -showing that if the job you are doing or getting your people to do requires problem solving and innovative thinking(most corporate jobs nowadays)extra bonuses and performance pays can actually have a negative effect on innovation and business results.

Take the experiment done by a quartet of Economists performed to understand how much reward was needed to increase productivity and performance.The experiment was conducted with three groups; the first group earned a small reward equal to a day’s pay for reaching their performance targets, the second group received two weeks pay and the third group nearly 5 months pay. So what happened? Did the size of the reward impact the productivity? Yes it did, but not as we would expect! The medium reward group never outperformed those with the small reward and even more surprising, those with the largest reward fared worst of all! Their performance lagged behind the other groups in every way.

There are many many experiments conducted by Economists, Psychologists and even Art Directors that show that we are less creative and appear to be less motivated to produce our best work when we are paid incentives to complete it.

It’s worth thinking about for your organisation. Is your performance management system motivating people to get the best out of them or in fact is it producing less than the best possible results? When did you last review it? It might be worth taking a closer look and/or doing some research to see if it really is helping your business achieve the desired results.