Competition Among Peers – Deming’s Third Deadly Disease

Photo by abac077 under Creative Commons Attribution

[tweetmeme source="leanisgood" service="ow.ly"]

Last week I did a posts here and here (and Bryan offered a different paradigm here) about the external motivation (carrot and stick) assumption of many performance evaluation / merit pay systems.  We’re calling this the “jackass series”.

Let’s talk about another assumption that underlies many of these systems – competition between peers increases productivity and effectiveness.  The effort to create competition can take on many forms.  Differential bonuses or annual increases, or forced rankings of peers.  Some go so far as to force somebody in the group to be put in a category like “needs improvement” or “C”.  In some of the most extreme systems people are “let go” for being placed in this category.

Deming wasn’t shy about what he thought about annual performance appraisals . From his 1982 book Out of Crisis:

The performance appraisal nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and politics… it leaves people bitter, crushed, bruised, battered, desolate, despondent, dejected, feeling inferior, some even depressed, unfit for work for weeks after receipt of rating, unable to comprehend why they are inferior.

It goes to logic that if peers know that at the end of the year only one person is going to get the good bonus or the good raise and one amongst the peers might have to be put on the ‘needs improvement’ list, some people will do what it takes to get the money.  If you force rank or demand differentiation you are incentivizing that behavior.  You have designed a system that encourages individualism at the expense of teamwork and creates an environment where Machiavellian machinations will be rewarded.  It will work like Survivor, people will manipulate and play politics to get their rival ‘voted off the island.’

A performance appraisal is based on an employee and his or her supervisor and the needs and inter-dependencies of that relationship.  However in everyday work the employee has many relationships that are more important to the organization – those with his or her peers.  From Peter Scholtes in The Leader’s Handbook:

Each employee has a separate relationship with his or her supervisor, one that involves performance expectations and review.  Each member of a team has has a relationship with the team that involves expectations and interdependencies.  Sometimes the employee may be forced to choose between what is expected of him or her by the supervisor and what is expected by the team….Which takes precedence?  Usually in such cases the team’s needs will be displaced and undermined by each team member’s obligation to his or her supervisor.

Although most of us depend on other people to advance the performance of our organizations, peer ranking systems and pay for performance systems that ‘differentiate’ between peers leave us with the choice between doing what is right for the team and therefore the organization, and what is in our own economic interest.  Many people will do the right thing, but shouldn’t compensation and other human resource systems make that an easy choice?

Maybe for organizations that can’t get over the need to extrinsically motivate people, a system where at least ‘natural work groups’ can be rated against other ‘natural work groups’ so that at least people who work directly together will not be compelled by the possibility of financial gain to undermine those with whom they work most closely.

What do you think?  Does economic competition between peers drive high levels of performance or will it result in politics and Byzantine efforts to be rated an “A”.  It’s not a simple question and there isn’t a simple answer.  Comments welcome.  Please take a few seconds to take this one question poll:

Bruce

Advertisement