Most companies use Key Performance Indicators (KPIs) to evaluate their business goals. Usually, these KPIs are disseminated to the micro levels (programs, teams, and individuals) for the purpose of evaluations and bonus calculations.
My Wallet vs. Our Wallet
This year, my company decided to improve our performance appraisal process. Ratings were based on the following breakdown:
- Program KPIs: 30%
- Team KPIs (4): 20% (5% each)
- Individual KPIs: 50%
- Total: 100%
Program KPIs were new, and were aimed at promoting collaboration and eliminating silos among teams within the programs. One way to contribute to the Program KPI was to organize team board games during off hours. With such a pain-free, fun way to get good performance ratings, who wouldn’t do that?
There were four themes to satisfy for the Team KPIs, and our team came up with a list of actionable items to satisfy each of them. Actionable item #3 (AI #3) in particular would help shape the organization's future and potentially help capture a bigger market share. Despite the huge positive impact, it was a time-consuming project, taking an estimated two hours per week on top of our regular deliverables.
AI #3 was a complicated, time-consuming project that would have great beneficial effects on the business. However, based on the reward system, it was only worth 5% of our evaluation.
Since the personal Return on Investment (ROI) was low, some team members wanted to invest our limited time on initiatives with higher ROI, such as playing board games (a low-investment activity if ever there was one!) to build toward the 30% allocated to the Program KPI.
Although playing board games could encourage cross-team collaboration, which of course should have long-term benefits, we knew that this alone would not have a significant impact on the business. We were faced with a dilemma.
If we took the maximize MY wallet approach, we would conclude that to ensure job security, we would need to achieve strong performance evaluation ratings (i.e., opt for low-investment and high-return activities). This of course would mean NOT working on AI #3.
If we took the maximize OUR wallet approach, we would conclude that, to ensure job security, we would need to gain competitive advantage in the market. This would mean we MUST work on AI #3.
One conclusion said we must not work on AI #3 and the other said we must work on AI #3. But time is finite. We had to pick one over the other.
We first reached out to our VP. He understood the dilemma immediately and was willing to make adjustments to the weightings of our program:
- Program KPI was now worth 20%, while Team KPI was now worth 30%.
- Projects that made up the Team KPI were not necessarily weighted equally; impactful ones could potentially be worth 25%.
Although we were granted a solution, it’s only a temporary patch. We have not yet been able to get our division, or, ideally, the company as a whole to adjust. Our hope is that our example can help the company get better at establishing KPIs and goals, and rewarding employees fairly based on data and results.
This has piqued my interest in performance appraisals.
“Leaders need to know what is wrong with performance appraisal and what to do instead.” - Peter Scholtes
This has left me wondering: should we try to make ourselves richer by only focusing on what gets us the best evaluation? Or should we look at the whole picture and do something that makes everyone in the company richer? And do performance evaluations risk biasing employees toward the wrong motivations?
Some questions to consider:
- Have you seen situations where performance appraisal has helped elevate individual/team/program performance but has undermined the overall business goal?
- Do we need performance appraisals, or should we focus on feedback sessions? Or something else?
- What if external factors (market fluctuation, database failure, etc.) keep employees from delivering results against KPIs; should employees be penalized for factors outside of their control?
I’d love to hear your thoughts. Leave your stories, opinions, or answers here.