It will come as no surprise that most organisations are driven towards providing a return on investment for their shareholders. The main objective for the majority of businesses is to make money. As a result the question of profitability seeps into all aspects of an organisation, including how they evaluate employee performance.
Ultimately, shareholders want organisations to plot out employee performance so they can be sure they are getting maximum return on their investment. Their money goes into paying employee’s salaries, so they want proof that the employees they are rewarding with pay increases and bonuses are performing to a high standard. This is often the main reason performance evaluations are carried out.
But what if the organisation implemented a more people first approach, thinking about the employee’s wants and needs rather than the shareholders? In general employees want to perform well, they want to take pride in their role and work toward career progression. They want their evaluation process to be fair, transparent, and equitable, ensuring they are rewarded for the work they are putting in.
The question is, how can organisations do both of these things? How can you keep stakeholders and employees happy by fairly rating and rewarding staff without going over budget?
Because by focusing too much on the wants of the shareholder, organisations can make two fatal assumptions. One, that it is to measure performance objectively and fairly, and two, that performance is relative.
We know that performance measurement is not objective, and most often not fair. When it comes to one person rating another there is a huge flaw, as research shows us that 61% of a performance rating reflects the person giving the rating, and not the person being rated. Meaning one person would likely get a different rating outcome based on who was evaluating them.
We also know performance is not relative, it doesn’t follow a normal distribution. For too long organisations have been trying to plot employee performance on a bell curve, but performance cannot be plotted like this, it’s unfair and inaccurate. On a bell curve you need to mark a certain amount of people as the bottom performers, even when in reality these people are probably not performing distinguishably worse than those labelled as average performers.
In reality it isn’t productive to split the majority of employees into top, high, average, below average and poor performers using a bell curve approach. Instead we recommend that organisations focus their efforts on accurately identifying the top 20% of performers. These are the people you really want to keep a hold of, and who should be incentivised to stay.
By plotting employees on a power law curve, you can show shareholders which employees are receiving the highest incentives due to their position in the top 20% of performers, then scrap rating for the rest of employees.
This way organisations are not wasting time putting meaningless ratings onto the majority of their workers. It is demotivating for staff to be told they are ‘average’ or a 3 out of 5, and causes backlash and arguments. If someone in one team is rated a 3, and someone in another team is a 4, is that really due to performance, or a difference in the manager rating them?
So instead, if someone is not identified as a top performer, they will simply continue to work with their manager to develop and grow their skill set so they can perform to the best of their ability, with the aim of someday reaching that top 20%.