Merit Pay Failure & Our Inability to Understand Group Performance

Recent years have seen a heightened emphasis on (and, in some cases, breathtaking levels of rewards for) the superstar performer.  From McKinsey's War on Talent research to the popularity of the Topgrading book and phenomenon, organizations have been urged to single out and aggressively tend to their "A" performers. 

A similar emphasis on individual performance lies at the foundation of merit pay, arguably the oldest form of pay for performance and - in many organizations - the only type of performance based compensation in place for the bulk of employees.   In fact, one of the biggest complaints aired about merit pay is the difficulty of disproportionately rewarding top performing individuals with small salary increase budgets.   And now pressure is pushing a number of businesses to (wisely, in most cases) implement broad-based variable pay plans, many of which (not so wisely) are tying awards heavily or entirely to individual performance.

To be clear, I am not against rewarding high performers nor am I advocating getting rid of merit pay.  But as I think about our collective struggles with merit increases and our fascination with superstar performers, I continue to be haunted by the story of Shane Battier, which I posted about here.  Battier is the N.B.A. player whose own conventional performance statistics are utterly unremarkable, but whose presence on the court consistently makes his team perform better and his opponents consistently worse.  I am reminded of how far most of us have yet to go in measuring the contributions of employees whose presence "in the game" inexplicably makes the whole team perform better.  I do realize that most performance management programs include an element titled "teamwork", but I have to wonder how many managers truly understand and appreciate the nature of how their teams work and the subtle, often unnoticed ways that people help their coworkers shine ... or cause them to struggle.

Here's my point.  When merit pay and individual rewards are the only games going - or where they clearly dominate the reward package - I wonder how much of the struggle to accurately measure and reward performance is due to a gnawing sense that our conventional tools and metrics are missing something important, something we can't articulate but realize is there.  While some of the issue can certainly be traced to a "tragic" lack of management courage and honesty, could it also be that our current programs too often force managers to "rate" the Shane Battiers in their domains as "B" players when they know in their hearts that this isn't right or true?

To me, this is one more reason why balance in our reward programs is so important, and why measuring and rewarding group as well as individual performance is critical.  Group level rewards, team or organization-wide incentives as one example, may not single out and appropriately reinforce the Shane Battiers of the corporate world, but they do accomplish something key.  They send, and put money behind, the message that contributions to the team matter, whether or not you are in a position to notice and acknowledge all the nuanced ways that they happen. 

And that is huge.

Comments

[E James (Jim) Brennan]

The synergistic effect of people who are talent multipliers is not really ignored. It simply doesn't lend itself to the type of relatively easily measured conventional metrics of quantity, quality, time and costs in the business world. Those things are carefully tracked in sports, but the typically desired results in business aren't as clear as won-lost records.

The squeaky wheels may get the high-profile grease, but I've seen big increases go to fatheads ready to walk if not "properly recompensed" while a simple wink goes to the mentor or team-core who may not get the richest raise but will be safeguarded when the other is let go. One may be rewarded short-term but is dispensible while the other is treasured and retained long term.

I suspect it's just beyond the ability of the conventional reward program to classify such SuperKeepers. Jay and Pat probably have the answer, though.

Remember our context. We all are still struggling to master the art of positive reinforcement in an era when egocentric arrogance is the popular model of admirable behavior, and "team" is a dirty semi-paternalistic word.

[Joe Rice]

We have a lot of rating errors that we discuss in HR (e.g., leniency, contrast, horn, etc) but we don't talk much about how ratings fail to capture the intuitive feelings of a manager. Objectivity is usually the goal. Maybe 360s help?

I think you are missing out on one big part of the Michael Lewis article though (which was also detailed in Moneyball): if you see value that doesn't fit into the archaic box score--change the way you measure.

[Ryan Johnson]

Ann, another thoughtful post. I read Lewis' Moneyball a year or two ago and it had my head spinning about the HR implications (I think I too blogged about it at the time).

I like the comment that 'the guy who invented the box score should be shot'. Larry Bossidy and Ram Charan, who wrote the book Execution a few years ago, put something in the book that stayed with me. They thought about individual performance on x and y axis, with one axis being 'statistical performance' and the other being (paraphrasing) 'intangibles/demeanor/attitude'.

Although the second axis is certainly difficult to quantify, this rubric makes sense to me. It would likely put Battier in the upper right quadrant where he belongs, and people like Dennis Rodman where they belong, too.

[Ann Bares]

Jim:

I keep hoping that we have left (or are ready to leave) the era of egocentric arrogance behind. But even if we do, there is probably a lag period before our metric catch up.

I still like your terms "force multiplier" and "talent multiplier". Am going to borrow them at some point and give them their own post (with proper nod to you of course).

Joe:

I think that is exactly my point (more in the previous post than this one) - that we do need to change the way we measure (or at least better understand and more openly acknowledge the limitations of the way we measure). But that's easy to say, much less easy to do, eh?

Ryan:

I liked that comment, too. And yet here are we in the corporate world, still very much fixated on the box score.

I like the Bossidy and Charan rubric (I remember that from my reading of Execution as well...). But it is my hope that we can find ways to bring a little rigor to measuring the intangibles.

Per our conversation, am looking forward to reading Moneyball. Way past time that I did.

Thanks - everybody - for weighing in here!

[Derek Irvine, Globoforce]

Ann, another spot-on post. I look forward to our webinar together soon.

On this topic of merit, taken from one of my own posts on this topic:

One thing that should be clarified (and resolves many of the problems of linking reward to performance) is the "currency" used for reward. By their very nature, cash recognition (or bonuses) are a problem as cash quickly becomes an entitlement and is easily confused with (or subsumed by) compensation. If the goal is to recognize above and beyond efforts of employees then recognition with a different “currency” than the cash used in compensation must be applied. That’s where strategic recognition comes in — giving a different currency for recognition with clearly defined and oft-repeated reasons deserving of recognition — to ensure employees know when they are being PAID vs. being REWARDED.

Strategic recognition accomplishes these additional critical goals not fully possible through compensation:
• Telling employees how their efforts matter – how they are not just working for the company, but with it.
• Encouraging cooperation and teamwork
• Encouraging people to notice and acknowledge stellar efforts of their peers
• Offering a “360° review” performance mechanism
• Offering a means for constant feedback throughout the year
• Making the rate of reward equivalent to rate of effort, employee by employee

The rest of the post is here: http://globoforce.blogspot.com/search?q=merit

[Ann Bares]

Derek:

Thanks - I look forward to the webinar as well. Appreciate your sharing your thoughts, and post link, on recognition!