Goals
The motivations of individuals are complex, nuanced, and frequently changing pending how they are feeling in that moment. What we do, say, and believe will be shaped by these moment to moment changes. The NeuroLeadership Institute, a performance management consultancy that works with Fortune 500 leaders to apply neuroscience research in corporate environments, has a model for motivations called the SCARF model.
SCARF stands for Status, Certainty, Autonomy, Relatedness, and Fairness. Each of these are descriptors that help us understand our motivations at any given point in time. While some of us may be more pre-disposed towards specific motivations in our everyday, our environment and daily context also will shape our motivations. For example, autonomy may be your main motivational driver for taking specific actions at work if you have a micromanager, while after a teammate is let go, you may be taking actions because the desire for certainty takes over.
When it comes to performance management, all of these factors do play some role in the individual's perception: status related to title, promotion, and their perception of their place in the organization. Certainty in knowing they are doing well or at least still going to earn a paycheck. Autonomy to decide the direction to take their career and execute their job responsibilities. Relatedness with their manager, colleagues, and feeling of belonging in the organization. Fairness in how you, your colleagues, your leadership, and customers are treated and the expectations placed on each party.
All of these factors shift in importance pending on context. However, fairness may be one of the most critical for the long term health of the organization. I'm going to sound like a tough parent, but the world is unfair. By extension, work is unfair -- you may be toiling for twelve hour days trying to get things done while your colleague seemingly cruises through work in six hours. Their manager may have no issue with their laid back lifestyle, while your manager continues pushing you further.
Performance management systems, especially in larger organizations, becomes a visible exercise in balancing fairness. When career ladders are relatively fixed and well-established, like expecting a promotion every two years or an increase in compensation annually, any breaks in this or deviations from the norm -- especially between peers -- can quickly turn contentious, creating a negative dynamic not only between peers, but also between the employer and employee.
For example, Big 4 accounting firms have well-established ladders and expectations for their teams. Typically after two years, an entry-level hire out of university can expect to get a title upgrade and an increase in salary. This becomes a selling point for prospective hires seeking some level of certainty -- they know they will continue to see their careers grow if they lock in. Getting rewarded and recognized for their efforts in a seemingly fair and transparent way.
But what if the business conditions change and there simply isn't enough revenue or new business to justify the promotion? What if performance is not up to par for what's needed at that level? This not only creates difficult conversations on the individual level, but also creates tension across the organization: the person who is promoted "late" may be seen as less effective by their peers. Similarly, breaking established norms because business isn't growing as fast as in the past may also be a signal that the company is struggling, making tenured employees more inclined to look for the exit.
What about the flipside of this? What if someone is absolutely exceptional at their work and is being held back by the norms? Breaking the protocol to move people up faster may also create challenges. The employee may need to be told they just need to "put in their time" to move up, but talented employees who outgrow their roles will start looking elsewhere for challenge and the payday that comes with their growing skillset. If they are promoted early, it signals to peers that they may be "special" or preferred by those in leadership, creating negative feelings -- perhaps jealousy or insecurity -- because someone has broken the norm.
Isn't this all a bit silly? But think back to your career -- we may not remember all the details of the office gossip, but we remember that it happened, and that it was a distraction. Much of how we feel about what happens when there are norms established are typically couched in our desire for fairness -- that as an employee, I am treated no better nor no worse than any other employee: treated with dignity and treated equally to other employees in accordance with the law and company policy. When rules and norms are bent to benefit only a few employees, it creates a perceived lack of fairness to others, even if that deviation from the norm is justified because the person in question is not the average employee.
Building a performance management system and strong culture around it is not easy. Like any system, it can be gamed or misconstrued to benefit some and punish others outside the initial intention. Because it is a system related to employee pay and career growth, the incentives to tip the scales in their favor is high.
While it is difficult, there are a few things you can do to blunt these negative effects from taking hold and commandeering the system. Some of this is built directly into the design of the system itself (ie how it works on paper) and some requires cultural reinforcement (ie how it works in practice).
Tenets for good design
Clarity in expectations. Performance management processes need to be clear across a few dimensions. Clear in their purpose, clear in their process, and clear in what the outcomes are as a result of engaging with the process as intended. Let's break each of these down.
Clarity in purpose is a shared understanding of the performance management philosophy and the function performance management serves in the organization. This helps managers and employees understand the culture the organization wants to foster, as well as why the process exists to facilitate this. Performance management can feel like a game of playing favorites or obligatory box-ticking, so acknowledging how your organization wants to do it differently, why the approach is important, and how this reinforces a strong culture that benefits all parties that engage, is important.
Second, the process must be clear and prioritized rigorously. This means how to write good performance feedback, how to facilitate effective conversations, and the weight the organization puts on the process are all important to clarify to make the process effective.
The teams will take it seriously if the organization makes it clear it is a process worth taking seriously. Any work activity needs to be tied somehow to business outcomes or personal evaluation, otherwise it becomes something to cross off a to do list versus an investment or something to look forward to.
Lastly, how the process influences their future prospects at the company and their pay is important. Again, this helps the team recognize that performance management is not just lip service, but actually designed to properly identify high performers and reward them accordingly. With this, it is important to not be dogmatic to avoid setting the wrong expectations. Performance management systems should not promise GPS-level precision, but more like that of a compass -- a directional guide. As business conditions change or demand new roles and responsibilities, high performers that are correctly recognized will be first in line for new opportunities.
Flexible in execution. Traditional performance management systems are rigid, both in how they evaluate and in their frequency. Performance management is both a system and a philosophy, and that philosophy is reinforced through its systems. There is little value in waiting to give feedback until the dedicated time for an annual review -- by that point the feedback is no longer relevant. Building a system that encourages frequent conversation that culminate into larger checkpoints for more formal tracking, is likely the way to go here. Beyond temporal flexibility, we also need to consider what is being evaluated. Going back to my story of interviewing for a job using Windows 95 in the year 2013, performance management systems should be frequently updated while also built to last -- encouraging behaviors and measuring results that are more shelf-stable than the latest software.
Transparent in measurement. Transparency in the system is key for ensuring fairness and setting clear expectations. Performance should be evaluated against items that are easy to measure. This usually falls into two buckets 1) quantifiable results, like achieving goals or hitting certain targets that are aligned to the business and 2) demonstrating desirable behaviors. The latter is more difficult to quantify in the traditional sense, but by doing the work upfront to identify your values and the types of behavior that are important for the organization to function, you can lay out what good looks like, encourage managers and employees to conduct and track this behavior, and reward it accordingly. If this is well-designed, you should promote behaviors that are aligned to the success of the business.
Promotes desirable behavior. Performance management systems can go awry when they support driving the wrong behavior -- behavior that doesn't lead to business outcomes, but either is only personally beneficial to the person doing the behavior, or only done for the sake of receiving a good performance review. This sort of "performative" behavior (pun intended), is a massive distraction and needs to be avoided. All members of the organization need to be aligned towards the same goal and working towards that in unison, each with their own role to play in that process. If the team is rewarded more for doing things that are not driving towards that goal, it creates friction and worsens results. The performance management system needs to keep this in mind -- what you reward is what you encourage.
Everyone can win. Bell curves and stack ranking create negative environments where employees feel like they are competing with each other. This sort of hunger games mentality, where there must be a loser and winners get outsized rewards, is a form of negative reinforcement. According to Aubrey Daniels, negative reinforcement is a great way to start driving a behavior, but you will rarely observe discretionary effort this way. In addition, promoting competition means discouraging cooperation. While some organizational heterodoxy may be that competition is necessary to keep employees from getting complacent (how dare they feel psychologically safe at work!) it's also an expensive way to do so -- not only from investing in multiple employees and teams working on similar problems, but also in lost time debating and politicking over how to move forward and work together.
I generally believe almost all internal problems stem from organizational design and the incentive structures that flow downstream from this: Systems that reward the wrong behavior, put people with little to no functional expertise in charge of decision-making on aspects of the business they don't understand, and create a feeling of nihilism in the workplace. All of this erodes working culture and optimism, trickling down into results over time.
Performance management systems need to ensure that all employees can win, and that success for one employee doesn't mean the other is a failure. Creating a system that rewards cooperation and pro-social behavior internally while also holding employees to a high standard will help ensure that success is not seen as a zero-sum proposition to employees. A performance management system that shows this will make for a healthier, more psychologically safe work environment.
In short, people need to be pretty fired up and feel confident to do good work. If they feel the environment isn't going to reward their effort, if they don't feel like they can have a stake in the organization's future, or if they feel like nothing they do matters, there will be decline.
Execution
Changes to these types of systems, or really any change that could impact how employees perceive their own value and place in the organization, is fraught with risk. As a leader, these types of changes need to be executed thoughtfully, acknowledging the uncertainty that comes with these changes, and reiterating the benefits of the change. While these changes may be good on paper, in order for them to take hold in your organization and be effective, it needs to become part of the cultural fabric and reinforced.
To do this well, leaders must consider the emotional component of these changes and acknowledge them, reassuring employees that this change is to help foster stronger culture, better recognize their efforts, and ensure their success with the company. Nothing will sabotage a change more than employees who don't believe in the change, its purpose, or its value to them. Making these points clear -- beyond the operational components -- will be critical. This process is a vehicle to help drive culture improvement at the organization.
Beyond how leaders approach and communicate these changes, the rollouts also need to be operationally smooth to facilitate buy in and improve likelihood of the changes being executed as intended. I recommend having training for managers and employees on productive conversations, details on the process, their role in the process, and acknowledging the relationship between employee and company, the relationship between performance and compensation, as well as clear expectations and guardrails to ensure the process is executed fairly and with minimal bias (since completely eliminating it, although noble, is impossible).
What's next?
There's a lot to think about when designing a performance management system. Unlike rules of a static game, the goals and conditions of a business are always shifting. Building the right systems that identify and reinforce the right behaviors, while being flexible enough to adapt to shifting business conditions, is critical. With this in mind, we can shift to focusing on how to actually build this and what good could look like.