All cultures have their blind spots, those commonly-held beliefs that become so ingrained no one bothers to challenge their truth. One of the most common blind spots I see in my work might be called the meritocratic presumption. For many senior executives, their own success confirms the essentially meritocratic nature of their enterprises, proof positive that cream rises to the top.
But this pervasive assumption may be about to be challenged by an emerging management trend: the move away from rigid, numerically based annual performance reviews. The connection is somewhat indirect, so allow me to offer some background.
In Review of Performance Reviews
The case against performance reviews was persuasively argued last year in Strategy + Business magazine by David Rock, Josh Davis, and Beth Jones. In “Kill Your Performance Ratings,” the authors argued that these ratings play a causative role in employee disengagement, instill mental paralysis and undermine peoples’ commitment and performance. The skepticism about numerically-based performance evaluations had already begun in some Silicon Valley firms, where creativity and collaboration are key. And then this year, a few big firms jumped on the bandwagon. In August, General Electric announced it would abandon the practice for significant parts of its workforce and would experiment with dropping numerical rankings altogether.
This was huge news, as GE is the company most associated with total, even slavish, adherence to performance ratings. Under Jack Welch, GE’s CEO from 1981 to 2001, the ruthless ratings were touted as the key to generating high performance. GE is particularly associated with the much-hated forced (or “stacked”) ranking system: All review scores are plotted on a single bell curve, with the top 10 percent of employees identified as high performers; the bottom 10 percent, tagged as dead wood, were slated for dismissal. Given that this was an annual practice, each year’s “bottom 10” would always have ranked higher in previous years, which meant the company was using the numbers to hollow out its own talent base. Welch, of course, influenced an entire generation of CEOs, many of whom adopted versions of his system, and he continues to vociferously defend it in his retirement.
The long-term strategic problems with this approach were also vividly detailed in Kurt Eichenwald’s classic 2012 Vanity Fair article on “Microsoft’s Lost Decade.” The company, Eichenwald argued, had failed to leverage the world-beating success that characterized its rise through the 1990s in part because of its adoption of a particularly onerous form of ranking. At Microsoft, not only individuals but also teams had to compete for scores, which had the perverse outcome of giving colleagues an investment in one another’s failure. CEO Steve Ballmer’s stubborn adherence to the practice — despite widespread agreement that it was stalling innovation and decimating morale — offered support for David Rock’s thesis that the only people who like the systems are the highly analytical CEOs who initiate them, because numerical ratings promise to reduce the complexities of managing talent to tangible numbers.
The Long Road To Consensus
As larger companies follow Silicon Valley early adopters in rethinking the wisdom of the annual performance review, the question arises: What might replace it? What might a more human and flexible way of assessing employee contribution and gauging developmental needs look like? As yet, no consensus on this question has emerged.
One big sticking point — and here we get to the blind spot — seems to be the concern that abandoning the process wholesale could make organizations less meritocratic. For example, speaking at a conference this summer, Kevin Cox, chief human resources officer at American Express, cautioned against letting a popular magazine like Vanity Fair “own the conversation on performance.” He noted that rateless approaches require careful consideration based on unbiased research and transparent practice and pointed out that numerical ratings systems were initially seen as a way to assure that employees were treated fairly by eradicating possible preferential pay and promotions for individuals with the right connections. This gets to the essence of the cultural objection, for indeed the solid numbers performance reviews seemed to provide gave companies both a rationale for and a way to support of paying for performance, a fundamental tenet of meritocratic belief.
It’s therefore worth taking a closer look at the now widely accepted practice of paying for performance as opposed to tying pay strictly to position. Pay for performance was originally associated with the piecework produced by manual labor — stitch more garments, get paid more — rather than with jobs that required significant thought, since such what we now call knowledge work was viewed as more likely to be affected by uncontrollable factors such as luck, collaboration and timing.
Indeed, recent research sponsored by the Boston Federal Reserve suggests that the success of tasks requiring complex cognitive effort cannot strictly be correlated with either motivation or effort. Yet most pay-for-performance schemes are rooted in the belief that money is always the prime motivator behind effort. More intrinsic rewards, such as being part of a successful team or bringing a challenging project or innovative idea to fruition, are assumed by those who hold this view to be secondary to purely monetary rewards.
This focus on pay as either the exclusive or primary spur to motivation seems particularly retrograde in light of research suggesting that many women and the younger generation of highly skilled workers place a relatively high value on the quality of their work experience. As a result, they may be less purely motivated by monetary reward than organizations (or many senior executives) assume. Indeed, GE’s leaders noted that the shifting composition of the workforce was a key reason for rethinking the value of annual reviews.
Onward With A Broad Vision
Despite this emerging shift how (some, not all) organizations perceive the value of ranked performance reviews, the faith in the essential equity, not to mention the efficacy, of pay-for-performance schemes remains a bedrock belief many modern firms. And it’s often a prime reason that companies today describe themselves as meritocracies — places in which anyone with sufficient smarts, talent, commitment, and guts can thrive.
Yet the work I’ve done in recent decades with diversity efforts in a range of organizations’ suggests that this meritocratic conviction may be misguided — a classic blind spot, as noted above. The same senior executives who proclaim it most urgently are often unaware of how much they have benefited from other factors, such as the perception among previous leaders that they are “a lot like me,” and so obviously suited to leadership.
Simply put, the unquestioning belief in meritocracy lies at the root of the kind of cultural blindness that companies striving to widen their talent base need to question. As leaders consider what might replace ratings systems, they would do well to look at how diverse sources of motivation reflect the priorities of diverse employees. Broadening the scope on that offers organizations a path toward creating a more flexible and adaptive cultures.
How are you working with this complex issue? What innovative alternatives are you considering? I invite your comments and thoughts; please share them below. Thank you.