So the news is that Microsoft have decided that their infamous stack-ranked performance management and rewards system is to be retired. The news comes too late for many.
Whilst there will be much coverage of the change, and much discussion about how tech companies manage performance and pay their employees, I expect little of it will challenge one thing that seems to have become “truth” in the sector: that pay should reward (or punish) an individual’s work performance. I just don’t buy that assumption.
Why not? Well, because I believe that for most of us the positive improvements in performance gained through paying someone more money are greatly outweighed by the negative consequences of not rewarding others, or rewarding the wrong people.
Unless you do something absolutely quantifiable, measuring performance output is subjective. Things that are seemingly objective, like sales, depend on other factors that are outside of the control of the individual (like the clients you have been allocated). Even entrepreneurship isn’t the pure meritocracy that some would like to believe. Many entrepreneurs are worshipped for their stories of success, yet any who doesn’t tell you “I had a reasonable idea, I worked hard, and I had some luck” is disingenuous to you and themselves.
For people who do physical work (bricklaying, for want of an example) you might see an improvement in performance output if you pay them on a piece rate; you also, though, risk issues of quality.
For the rest of us, the impact of tying pay to performance is negligible to negative. See Dan Pink’s great book Drive for more on this, but here’s a simple thought experiment. Imagine first of all that you have found out that you get paid significantly more than your exactly equivalent colleagues. How would that make you feel? How would that impact your performance?
Now imagine you have found out you get paid significantly less than your peers. Again, how would that make you feel, and what would it do to performance?
Most of us, I believe, would be more negatively impacted by the latter than positively impacted by the former. So why do we make such a big deal in so many organisations of rewarding the subjective performance of staff?
My hunch is for two reasons. Firstly because is seems logical. Face logic, as behavioural economics tells us, is often wrong. But because it seems logical, it isn’t challenged.
Secondly, because linking performance to reward helps people at the top of these organisations make sense of their own personal wealth and worth. But then if these guys do believe that we live in a meritocracy then their egos must be dangerously over-inflated.
“OK smarty-pants. You’ve whined a lot about what you don’t like. What would you do?” I can hear you say…
Well, this is what I’d do.
First of all, pay should be seen as an assessment of market value. The assessment is made when you start on a job. Significant changes to salary come if you change role or your role changes. Salaries wherever possible should be index linked to protect against inflation.
Bonuses should be based on overall company performance, and distributed equitably to all (proportionate to salary or as a common amount I’m not sure).
Performance reviews should be disconnected from pay. Reviews are important to be able to praise the good and to coach for improvement. If someone is underperforming then it’s the joint responsibility of manager and employee to coach to better. What amounts to “underperformance” should be left to the discretion of teams (not just bosses). Teams should be clear about what their team objectives are. 360 appraisal approaches probably apply here, but need to be attributable (and possibly in person rather than form-based).
Underpinning all of this are two key elements: we perform better if we have meaningful, interesting work to do, and we also perform better when part of a team.
Idealistic? Quite possibly? Demoralising? Less so. Likely to produce better business outcomes? I’m willing to bet on it. Here’s hoping stamp gets the opportunity to try it out some time.