The Flaws of the Performance Management System

Today's corporate performance management systems are the foundation of many promotion and merit based pay decisions. Corporate managers work very closely with their subordinates to develop "Goals" and "Action Plans" to align with the company's objectives and the career goals of employees, respectively.

However, the performance appraisal system has evolved into more of a "documentation tool" than an actual coaching tool. Corporate Managers utilize this tool to retroactively support their decisions:

• Promote a star employee
  
• Discipline a problem employee
  
• Transfer an employee to another department

Often the decisions to promote, discipline, or transfer employees have very little to do with the Performance Appraisal (PA) process. It is very rare for an employee's development and subsequent corporate contribution to be tied to an effective PA process. In fact, the PA process is often months overdue---Initial Planning completed at the end of Q1, and the final rating completed after a promotion and merit decision has been made the following year.

So Why Bother with a PA System

Employees often accept these PA documents for what they are: Documentation to support management decisions. There really is no PA process. The Human Resources departments perpetuate the PA process and ensure that the appropriate documentation is completed. Does any employee ever actually develop so much during one year that they achieve all of the predefined goals spelled out in Q1? Also, can a corporation really see the employee make a significant contribution based on this remarkable development plan throughout the year?
Finally, does the company really care about some document that a manager and their employee created if it doesn't fully align with the corporate goals? Probably not.




Corporations basically focus on the following:

• Meeting Corporate Metrics
• Staying out of trouble

Let's increase Corporate Productivity by Being Candid:

• Report Individual and Team Metrics on relevant dashboard systems
• Address disciplinary issues immediately
• Clearly define training and developmental opportunities at the beginning of a year

The corporate Performance Appraisal System is a joke. It is not timely, it is often not relevant, and it is merely a redundant version of a corporate dashboard. Please stop masking this tool for what it really is: a form of documentation to retroactively support management decisions.

The Agency Dilemma

The agency dilemma is an interesting term from business school curriculum which I think many B School graduates conveniently forget. The agency dilemma basically refers to the problem that exists when the motives of the company's management team do not align with the motives of the shareholders. Therefore, what's good for the management team is not necessarily what is good for the shareholders.

From the mail room....
The agency dilemma can occur at all levels of the company. If rank and file employees are not motivated by their management this may often have an impact on their productivity. Another subtle way in which the agency dilemma is illustrated is through the"Yes Man" mentality. Grassroots level workers often are the closest to the customer. However, for fear of disagreeing with their management, they often follow in the wrong direction. In fact, they may demonstrate overwhelming support for their leadership's idea, even if this idea would inevitably fail. In corporate America, leadership alignment and loyalty are often rewarded more than innovation and courage. Sound familiar B-School grads---Is this you???

To the C Suite
The agency dilemma at the C Suite is frightening. Randy and I were discussing a Linked In type of product which existed only for top level executives. As we started talking, we realized that there are a lot of products created only for C Level Executives. In fact, these C Level Executives spend a lot of time developing products and services that only serve them. Is this in the company's best interest? When exorbitant pay packages and golden parachutes are market aligned, one has to wonder, "Did the C Suite create these themselves...for themselves?"
The C Suite seems pretty busy preserving their retirement wealth, creating tax loophole strategies, spending time with company accountants, and networking with each other. Are these really company value added---or C-Suite value added activities? When CEO's join a company for a short timeframe and extract significant equity from the company, is this really in the best interest of shareholders?

How can ethics be so low, with those groomed to be the future leaders of the company?

Actually, these activities make total sense. Many of these Executives were groomed as a result of being "hand-picked" very early in their careers. In corporate America, it is very difficult to be "hand-picked" by your management team if you are challenging their leadership decisions and ideas. Therefore, the "Best and Brightest" in corporate America grow up in a culture of "we take care of our own". Oftentimes, these "Preferred Status" employees believe their own hype. They drink their boss's Kool Aid---and start to believe their own propaganda. They believe that whatever is good for them, must be good for the company....or at least they rationalize this theory. So the agency dilemma strikes at the Core of our Corporate Infrastructure.

The Agency Dilemma in 2010 - The Rules of Corporate America

Individual Contributor
1. If I agree with my boss, I will get ahead
2. If I disagree with my boss, I will not get ahead

Grassroots Level Manager
1. If I hire loyal people, I will get ahead
2. If I fire those who challenge me, I will get ahead.
3. If I follow the lessons I learned as an individual contributor, I will get ahead.

Director Level Manager
1. If I create my "kingdom" of resources, I will get ahead.
2. If I build alliances external to the company, I will get ahead
3. If I take care of the Loyal Followers, I will get ahead.
4. If I follow the lessons I learned as an individual contributor and grassroots manager, I will get ahead.

VP Level Manager
1. If I bring in my own people, I will get ahead.
2. If I create my own hype, I will get ahead.....aka "Values of my organization"
3. If I follow the lessons I learned as an individual contributor, grassroots manager, and director, I will get ahead.

C-Suite Executive
1. If I use my position to extract maximum value from the company for my own personal gain, I will get ahead. "Empire Building"
2. If I believe that the company benefits when I benefit, I will get ahead.
3. If I "take care of my own", I will get ahead.
4. Since I am the Boss, everyone needs to agree with me and exhibit blind loyalty, or they will not get ahead.

The Learning Effect

The Learning Effect is really an outcome of the Learning Curve. As we all learned in Economics 101, (and experienced as we learned how to ride a bike) we become more proficient and productive with an activity through repetition and practice. Therefore, an inefficient activity can scale to become an extremely efficient activity as proficiency increases---with an exponential growth in production.


So What is the Learning Effect Then???
The Learning Effect applies this concept 1 step further. When a geographic area has a group of specialists within a specific arena, this specialization has an impact on the entire society around them. Under this premise, those who do not practice the specialty as a profession will still become more proficient, by learning from those experts around them. Thus the specialization in the region has an impact on all of those within the locality, whether or not they practice within the given arena.

The Bay Area Example
Within the SF Bay Area, there is an extremely high proficiency rate in Information Technology and technology applications. From the use of smartphones to the use of home video editing tools, the SF Bay area is among the most proficient in the world. Does everyone in the Bay Area work in IT? No, certainly not. However, the proficiency levels of those who specialize in IT are so great that they have a cultural impact on the entire community. Therefore, this is often the early adopter market.

What is the Impact?
By moving to the Bay Area, you will most likely become much more proficient in technology. Although your job may not require this proficiency, you will be surrounded by early adopters and tech enthusiasts. Friends will indoctrinate you into the culture of "check ins" "tweeting" and talk about operating in "the cloud". Similarly, in NYC, a casual luncheon conversation about the "CAP Rate" of the piano you just purchased for your daughter is fairly common.

So What?
Do you want to become an expert?---just move. You need to go where the Big Fish are. Once you're swimming with the Big Fish, go back to your Pond where you're the Peacock Bass. In NYC, finance is part of the vernacular, just like ordering a "slice of pizza" at Joe and Pat's or taking a "trip to the shore." You're always going to know if your "highly levered" in NYC or if its time to create some liquidity. In SF, it's all about making your online world and offline realities coexist in harmony. It's about living green and managing "friends", and "tweeps". To become an expert, you don't need to go back to school...just move. The Learning Effect will take care of the rest.

Sword of Damocles

So What is the Sword of Damocles and What Does it Mean to me?

The sword of Damocles is a fable which reiterates two key concepts:
1. Be Careful what you ask for
2. It's lonely at the top

So basically, the sword of Damocles is a story about a sycophant, Damocles, and his king. One day the sycophant told the king that he would love to live his life for one day. The king obliged him with one caveat which the sycophant would learn later. After enjoying the wonderful meal and enjoying his life on the throne, Damocles noticed a sword hanging over his head held by a human hair. Damocles lost all taste for the throne and no longer wanted the prestige of the king.

What Does this Mean to Me?

Within the business world many people focus all of their efforts on the growth of their careers and the opportunities for leadership positions. Unfortunately, while in these positions, new managers often realize the true stress of the job....and their employees suffer the brunt of this stress. These managers may continue to get promoted never really appreciating that the stress levels are increasing, and their management skills are getting worse. Finally, after leaving a scorched earth trail of ruined careers and turnover, these managers reach the end of their earning potential. This is also known as the Peter Principle.

If you are a new manager and you cannot take the stress, do not prioritize your career over your health and the health of your employees. Understand, as Damocles did, that the dangers and stress of the roles will increase with every promotion. This is a reality that must be understood prior to asking for that next promotion...or the promotion after that.