The Case Against Performance Appraisals And Pay For Performance – Deming’s Thoughts
“gemba walk” (lean thinking term) to go to the actual place where value is added + “walkabout” (Australian aborigine) a short period of wandering bush life engaged as an occasional interruption of regular work . Mike Stoecklein . email@example.com . my employer gave me that e-mail address, but the ideas and opinions below are mine.
In every company where I’ve worked there has been either: 1) a performance appraisal/pay for performance system in place, or 2) there was not one in place and people wanted to make such a system. In both cases, I’ve always asked “why”? and argued to get rid of the system or keep it from being added.
I plan to explain my rationale in a series of posts. This first post is from the contributions of Dr. W. Edwards Deming.
Dr. Deming first studied and taught mathematics and physics. He then learned about statistical theory and methods from Dr. Walter Shewhart and others. If you ever saw Dr. Deming’s business card (I have one) or received a letter from him (I have many), his title read “Consultant in Statistical Studies”. He was also a professor and taught at several universities.
In his statistical consulting work, he would provide information and advice to a company’s management based on his statistical findings. Over time, his consultation broadened to cover “quality, productivity and competitive position”. This was the title of one of his books (I have one of the copies), and also was the title of his 4-day seminars (I helped him with 4 of them).
He found receptivity for his ideas in Japan after World War II (he was asked to help by General MacArthur as part of the occupation efforts to help Japan recover from the results of the war). He was asked to continue on at the request of leaders from the Japanese Union of Scientists and Engineers (JUSE), and it was this relationship and work that led to the resurgence (and subsequently domination) of Japanese industries in the global market. He brought new knowledge – not from western management. He taught them about variation and how to react to it, as well as an understanding of a system and collaboration within a company and their country.
So, what does this have to do with performance appraisals and pay for performance? It was not until 1980 when it became clear that the United States was not competitive in the global market that Dr. Deming’s philosophy on quality, productivity and competitive position gained receptivity in the United States. Things had to get really bad before American management could see that they had a problem – that they WERE the problem.
Dr. Deming’s consulting practice became very busy after he was briefly featured in a 1980 NBC documentary “If Japan Can, Why Can’t We?”. He was getting requests for what management should be doing, and his 4-day seminars were seeing increased attendance. He provided (somewhat reluctantly) a list of points to management on what the must do or not do. This became his “14 Points for Western Management”. These evolved over time. There were not always 14, and the wording of the points changed as Dr. Deming learned more about what management must do (or stop doing). These 14 points were described in some detail in his 1986 book “Out of the Crisis”.
Point 12 always generated discussion and push-back at the 4-day seminars or when people read his books. Here is the wording for point #12 from “Out of the Crisis”:
12a. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality.
12b. Remove barriers that rob people in management and engineering of their right of pride in workmanship. This means, inter alia, abolishment of the annual or merit rating and management by objective.
In the late 1980s and until he died in 1993, Dr. Deming described the body of knowledge from which the 14 points were derived. He described this “system of profound knowledge” as 4 interdependent components:
Appreciation for a System
Theory of Knowledge
The list of all 14 points for western management and the system of profound knowledge is shown below:
A deeper understanding of these 4 components and their interactions, provide the logic behind why performance appraisals and pay for performance rob people of their pride in work and should be abolished.
Reason 1 – When we understand variation and we have a appreciation for a system we will understand that any result (performance, behavior, etc.) comes from 2 factors and their interaction. Dr. Deming put it in he form of an equation. X + (yx) = result Let “X” = contribution of the individual. Let “Y” = the system in which the individual works. There is some outcome, 8. It could be $8,000,000 in revenue or 8 mistakes. We need X. Unfortunately, there are two unknowns and only one equation. Johnny in the sixth grade knows that no can solve this equation for X. Yet people that use the merit system think that they are solving for X. They ignore the other term (YX), which is predominant. So, to focus solely on on the individual (which is what you do with performance evaluations and pay for performance) is not rationale. Do the math – it does not work.
Reason 2 – Performance evaluation and pay for performance systems tend to sub optimize the system by driving behaviors that cause people to focus on their individual efforts (results) rather than to consider the larger system of which they are a part. Dr. Deming used a simple example to explain this.
Some systems are simple, like a bowling team, where there is very little interdependence. To know how the system (team) is doing, you merely add up the scores of the individual players.
But many systems are not like bowling teams. They are more complex and resemble a symphony orchestra. The output (great music) is more than the sum of the parts, it is the product of the interactions of the parts. It is not the sum of many solos. The output of a company is not the sum of the parts, it is the product of the interactions of the parts and how they work together.
However, western management tends to divide the organization into parts and treat something complex as if it were as simple as a bowling team.
Traditional performance evaluation and pay for performance systems drive behaviors that force the individuals to manage their boxes on the organization chart, rather than to manage the organization as a system. Systems drive behaviors, we know this to be true. The behaviors that the traditional performance evaluation and pay for performance systems drive are competition between the people, not collaboration.
Reason 3 – When we understand psychology, including what motivates people (intrinsic, extrinsic and the phenomenon of “over justification” we would understand that traditional performance evaluation and pay for performance is one of the destructive forces that squeezes out intrinsic motivation that a person is born with. Dr. Deming used this diagram to illustrate:
Therefore, continuation of a performance evaluation and pay for performance system, or creation of one where it does not exist, contributes to the forces of destruction of the individual.
In the words of Dr. Deming, “I’ll have none of it, not I”!