informal coalitions

Je ne target rien - Enabling performance in organizations

In the previous post, I endorsed a recent article in the Sunday Times, which pointed to a number of flaws in the widespread practice of linking individuals’ pay to their perceived performance.

In addition to the problems identified in the article, I called into question the fundamental premise on which performance-related pay is based. That is, that direct relationships can readily be established between organizational outcomes and the decisions and actions of specific individuals.  The complex social dynamics of organization make such links impossible to establish.  In other words, it is simply not possible to isolate the effects that the intentions and contributions of a particular individual have on organizational performance.

So the challenge to target setting and performance-based rewards for individuals can be made on two fronts:

• First in relation to the supposed effect that these have on an individual's tendency to work more effectively than he or she might otherwise do (that is, the proposition that targets increase motivation, focus effort, and enhance accountability).
• Secondly, as regards the complex social dynamics of organization that inseparably intertwine the intentions, interactions and contributions of those we are seeking to appraise with the intentions, interactions and contributions  of all other participants – both ‘within’ the formal boundaries of the organization and ‘beyond’. These dynamics render the notion of cause and effect meaningless in relation to the effect that individuals' contributions have on organizational outcomes.

Fundamental flaw in performance-related pay

An article by Carly Chynoweth, in the Appointments section of the latest Sunday Times (5.2.12), includes a refreshing challenge by Warwick Business School professor, Bruno Frey to the notion and practice of performance-related pay. The article was no doubt prompted by the current furore over the size of executive bonus payments and other 'rewards for performance'.

Referring primarily to the pay of CEOs, Frey’s main suggestion is that target-based approaches to bonus payment should be scrapped.  He argues that any such pay should be based instead on an annual, retrospective judgement about the nature and extent of bonus that a CEO’s performance merits.

Several of his points resonate strongly with those I have made in earlier posts, such as Building commitment –v- rewarding performance and Public sector pay review – Off target. At the same time, his notion of an annual appraisal, based on hindsight, still assumes a degree of objective knowledge about the causes of performance outcomes that I don’t believe is credible in the socially complex world of organizations.