Sorry, but measuring people doesn't add up to improved performance

A reliance on measuring employees’ performance as a way to fast-track the success of a firm is a flawed strategy, writes Stacey Barr.

It is widely assumed that measuring people’s performance is an essential way of improving the performance of a firm or organisation. About 90 per cent of businesses are still doing it and, in particular, linking pay to performance. But how many of these companies have sought proof that it works; proof that managing people by numbers is really boosting the overall performance of the firm?

The current research says it does not work. Renowned psychologist Daniel Kahneman has found that linking pay to performance is demotivating. Best-selling management author Dan Pink maintains that the true motivators are intrinsic. And Stanford Business School professor Nicholas Bloom’s research states that traditional performance management works in manufacturing, where outputs are tangible and consistent and largely within people’s control, but not in non-manufacturing organisations, where outputs are intangible and varied and impacted by factors outside people’s control.

Purpose, not pay, the key

In a recent McKinsey Quarterly article, performance-management experts Boris Ewenstein, Bryan Hancock and Asmus Komm argue that the traditional methods of managing employee performance no longer fit in today’s more complex and less deterministic business world. In their place, they say, we need more fluid and in-situ coaching for performance that can respond to this new reality.

They cite a very thorough study conducted by one company in the Middle East that found that purpose, and not pay, is the single most important driver of motivation. So measuring people’s performance to rank them, to reward them, and to reprimand them is a bad habit firms have to shake – because it does not work. Anecdotally, we know this. Performance review meetings are too little, too late. They feel superficial and are based often on numbers – such as perception ratings – that are mere proxies to real performance. They create competition between employees, when we know that it is collaboration that makes the difference to overall organisational performance.

Just because we have always managed employee performance in this specific way does not mean it should continue. To find what to do instead, to help employees improve their performance in a way that improves the firm’s performance, we need to look at the reasons why the current performance management system fails. Much of the reason stems from the beliefs and attitudes people have about being measured that reinforce a downward spiral in overall organisational performance. Managers want people to perform better, so they monitor them to assess their performance. When people know they are being monitored, they feel judged. No one likes to feel judged. People will then take the judgment personally and that makes them feel threatened.

When people feel threatened, they get defensive in an attempt to protect themselves in any way they know how. The most common method to protect themselves from the threat of performance measures is to hide performance problems so the measures look good. Or they will manipulate the measures to make the results look good. Or they will set targets for measures they know they can achieve.

Hidden dangers

In Measurement Madness: Recognising and Avoiding the Pitfalls of Performance Measurement,  authors Dr Dina Gray, Dr Pietro Micheli and Dr Andrey Pavlov share an unbelievable number and variety of stories about how people have unwittingly ‘gamed’ the measurement system in all these ways and more. When the important performance problems are hidden, performance gets worse. Why wouldn’t it get worse if it is being ignored? Managers will pick up on the fact that performance is worsening, probably by the upstream impacts on higher-level performance measures. So their instinct is that more monitoring is needed. More monitoring means that people are feeling the scrutiny of more judgment. And the spiral continues downwards.

Employee performance management is an essential part of managing a workforce. We cannot dispute that. But what we can dispute is the role of performance measures in this process. Rather than expecting the measures to motivate the right behaviours, managers should be coaching the right behaviours. Rather than measures being a rod for people’s backs, they should be a tool in their hands.

Instead of holding employees accountable for hitting targets, and ‘performance managing’ them when they fail, the notion of accountability needs reframing. With our current definitions of accountability, we are ensuring that we have lots of inaccurate good news. What we need for true performance improvement is accurate bad news. So to truly improve performance, our definition of accountability has to change. It has to still be a challenge to encourage people to reach and stretch outside their comfort zones, but it cannot fill them with fear.

New means of accountability

A new model of accountability has three parts. First, routinely monitoring the important performance results. Second, validly interpreting the measures of those results. And third, initiating performance-improving action, only when action is required. When an employee is responsible for a specific business result, such as problem resolution or accuracy of advice or eliminating rework, they can be accountable for routinely monitoring that result with a performance measure.

This drives the behaviour of people focusing on the results that matter; the results that are about the firm and not about them personally. Measuring the business results takes the threat out of measurement, and helps employees align with purpose, as Pink suggests they need to do.

As that employee takes responsibility for monitoring a performance measure, they can be accountable for interpreting what that measure is telling them about the business result it measures. This drives the behaviour of people seeking feedback about how the results are actually tracking. Given that the measures are about the business and not about them, it means they can practice the openness and curiosity that is not negotiable for learning about what really works – and what does not.

And, as the employee takes responsibility for interpreting a performance measure, they can be accountable for deciding what kind of action is needed, if at all. This drives the behaviour of people working on their processes, and not just in them. Rather than pushing and rushing to hit daily or weekly targets, they are creating leverage to make higher levels of performance the new norm, by removing waste and bottlenecks from their business processes.

Key role for managers

Managers provide the coaching needed for employees to fully practice this alternative definition of accountability, of using measures to improve business performance. It sets organisational strategy and performance as the context for feedback for and development of employees; to hone their attitudes and knowledge and skills and behaviours to better serve the organisation’s goals. That is the true link between people’s performance and organisational performance.

Stacey Barr is a specialist in organisational performance measurement and KPIs. She is the author of Practical Performance Measurement: Using the PuMP Blueprint for Fast, Easy and Engaging KPIs. For more details, visit www.staceybarr.com.