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Dear Colleagues,

I couldn't agree more with Niels' point! Prof. Jeffrey Pfeffer wrote a short piece on this topic in 2009. It appeared in Business Week and I have used in some of my classes. I have attached it for those of you might have an interest in this topic. I believe that individual performance appraisals have stayed in place simply because most people would not question the effectiveness of this process!

Thanks,

Ivan

Dear Management Academy Members,

 

I am currently trying to come up with a new bonus-model for the executive level. My idea is basically that the respective employee receives 70% of his bonus tied to the overall company success (such as the EBIT) and the other 30% should be tied to personal goals so even when the company produces a loss the employee receives a bonus given he performed above average.

 

Does anyone have advice on what performance indicator to base the personal goals on?

 

Thank you in advance for your support.

 

Best regards,

 

Chris Krinner

 

Ivan, Chris, and OB List Colleagues,

I believe the problem is that we focus too much on performance appraisal and too little on the broader performance management process-this would avoid or at least minimize many of the concerns expressed by Pfeffer and others. More detailed information on this point is included in the following articles published in Business Horizons (available at http://mypage.iu.edu/~haguinis/pubs.html):

·       Aguinis, H., Joo, H., & Gottfredson, R. K. 2011. Why we hate performance management-and why we should love it. Business Horizons, 54: 503-507.

·       Aguinis, H., Joo, H., & Gottfredson, R. K. 2013. What monetary rewards can and cannot do: How to show employees the money. Business Horizons, 56: 241-249.

·       Aguinis, H., Gottfredson, R. K., & Joo, H. 2012. Using performance management to win the talent war. Business Horizons, 55: 609-616.

·       Aguinis, H., Joo, H, & Gottfredson, R. K. 2012. Performance management universals: Think globally and act locally. Business Horizons, 55: 385-392.

All the best,

--Herman.

Dear Colleagues,

I couldn't agree more with Niels' point! Prof. Jeffrey Pfeffer wrote a short piece on this topic in 2009. It appeared in Business Week and I have used in some of my classes. I have attached it for those of you might have an interest in this topic. I believe that individual performance appraisals have stayed in place simply because most people would not question the effectiveness of this process!

Thanks,

Ivan

Dear Management Academy Members,

 

I am currently trying to come up with a new bonus-model for the executive level. My idea is basically that the respective employee receives 70% of his bonus tied to the overall company success (such as the EBIT) and the other 30% should be tied to personal goals so even when the company produces a loss the employee receives a bonus given he performed above average.

 

Does anyone have advice on what performance indicator to base the personal goals on?

 

Thank you in advance for your support.

 

Best regards,

 

Chris Krinner

 

I would suggest going back to the 80's when this issue was addressed by Deming and one of his disciples, Peter Scholtes.  An old piece by Carson, Cardy and Dobbins in G&OS, 1991, does a nice job of summarizing Deming's assumptions about PA and how they contrast with traditional PA assumptions.

From: Organizational Behavior Division Listserv [mailto:OB@AOMLISTS.PACE.EDU] On Behalf Of Martin G. Evans
Sent: Tuesday, November 11, 2014 2:29 PM
To: OB@AOMLISTS.PACE.EDU
Subject: Re: [OB-LIST] Performance Indicator for Personal Goals

By giving performance based bonuses that are in proportion to one's salary may work to enhance performance on rudimentary and, maybe, cognitive work; however, they will fail to motivate the mind essential to produce innovation. Rather than setting the employees' minds free to bring about breakthroughs, they will contain their initiatives to bring incremental innovation at the best.

A lot on motivation, reward, and performance appraisal is covered very well in the following book:

Amar, A. D. 2002. Managing knowledge workers: Unleashing innovation and productivity. Westport, CT: Greenwood Publishing Group  (Quorum Books Imprint).

My Best Regards,

A.D. Amar, PhD

        Chair (Pro tem) & Professor of Management (Knowledge/Innovation, Operations & Strategy), Stillman School of Business

650 Jubilee Hall, Seton Hall University, South Orange, NJ 07079, USA; Telephone 973 761 9684 ad.amar@shu.edu OR amaramar@shu.edu; http://pirate.shu.edu/~amaramar See Our Doing Business in India 2013 Trip Story: http://www.shu.edu/news/article/437488 & http://www.shu.edu/news/article/347131. See photos of Doing Business in India: http://www.flickr.com/photos/amaramar/

Office Hours: Mondays & Wednesday: Mostly available preceding 3:30 pm class, and 5:00-6:30 pm

Fridays: most day; And by appointment. Important to reach me: Call me home. Ask Tanya Dixon for the number.

Secretary: Tanya Dixon; Tel. (973) 275 2531: Tanya.Dixon2@shu.edu

From: Organizational Behavior Division Listserv [mailto:OB@AOMLISTS.PACE.EDU] On Behalf Of Martin G. Evans
Sent: Tuesday, November 11, 2014 3:29 PM
To: OB@AOMLISTS.PACE.EDU
Subject: Re: [OB-LIST] Performance Indicator for Personal Goals

1. Compensation and bonus structures stemming from the fruits of agency theory have a mixed track record, even when we go back to some initial decoupling in this article: "The Decoupling of CEO Pay and Performance: An Agency Theory Perspective" (Tosi & Gomez-Mejia, 1989). I love this quote from the article: "While the observed level of statistical significance for the performance factor varies across studies, and it is interpreted according to the ideological persuasion of the writer, most studies share something in common: the total amount of ex- plained variance in executive pay attributed to firm perfor- mance is minimal, seldom exceeding 15 percent and often well under 10 percent."  There is ideological disagreement on executive compensation in general, especially here in the US, but the impact of CEO pay on firm performance is questionable. 
2. As a business leader, I often see poor alignment between interests of the firm and employee compensation. First, the larger the bonus, the more incentive to game the system to justify the bonus. I've seen a bellyful of channel stuffing to fund sales bonus targets, ill-advised actions (M&A, product/marketing decisions, operating plan decisions, etc.) that were made for personal benefit and not for the interests of the firm. 
3. I'm hard-pressed to defend that the actions of one person produce anything that can be measured solely on the basis of that one person. It's one thing to say to an engineer, "you wrote X lines of code and you had Y percent of rework" so therefore you get Z bonus, but even that gets sketchy. There are a ton of silly decisions individuals make when their MBO's are strongly tied to financial incentives. That engineer (hypothetical example again) might sign up for an easy module of code to write and won't take the hairball project, etc. 
4. Also, individual targets are antithetical to the team ethic we find ourselves preaching as execs as we look for greater operational gains and organizational effectiveness. When you compensate a development engineer 30% MBO, a QA engineer 10% bonus, and a technical writer 5%, the pecking order is clear. The organization is saying "we value the development engineer the most and the writer the least." YET, we ask them to work together to produce a product as a team. Ugly. And it doesn't work. 
5. Now, extend that thinking to the GM (general manager) of a division. Can I really say the GM's individual performance  merits Z bonus? Because he/she met a financial goal? What about the goals of their individual MBOs? Did they make the product deadline? Did they hire and fire enough people? This becomes another strange argument.