1. Simply set PFP such as FRS is a lazy way to administer pay for performance program. The percentage system creates a convenient way which requires minimum effort to identify great or poor performers. This way causes judgment bias, as one's performance depends on various factors; it is very good in LE website that gives teaching as an example. Our grades depends on mainly the effort, but also on teaching quality, personal interests, teaching facilities and quality of classmates etc. it is even more complex in commercial organization. Efforts take even less part that can decide your result. Chance, environment, training/experience and leader's direction are all crucial uncertainties. However P&F only look at performance through effort, regardless other factors.
2. Much work is done by groups. It is no fair way to really compare people because it is difficult to isolate individual contribution. If have to rank people in a team, even if the team is truly high-performance, someone still be ranked low.
3. Not good for teamwork as it associates against each other instead of fostering a collaborative work environment. People are likely to be more focus on their own progress than that of the team as a whole.
4. Too much focus on PFP makes people care about goal but just trying to beat the judgment scheme, may be even cheat in the scheme somehow or ensuring the blame for failure goes to elsewhere.
5. Significant replacement cost if someone gets fired. A new person coming in needs to be trained, taken care by managers which cost even more financial and human capital.
6. Personal bias on PFP is also a problem. Some people are good at one task doesn't necessarily mean he/she is good at another. Managers giving reports is also based on their own views. Then employees tend to seek manager who writes good report instead of focusing on their work.
7. Creating a culture of fear and mistrust, people afraid of making mistakes which contradicts against Deming's theory. In Deming's learning organization, it encourages people to take risks then lead to improvement. But if under PFP, taking risks might cause worse performance, they would rather sit back and do nothing.
PFP is said to be controversial is because e.g. who can guarantee that everything in organization is objective rather than subjective, is there any evaluation totally fair? How can we have motivation if there is no pressure? The questions lead to Pros.
1. PFP helps align the direction of the individual and the company, also indicate the levels of performance.
2. Good performance can be reward consequential improvement, in moral and motivation. If employees can see their performance directly link to financial rewards or promotion, or their failures link to being fired, they will work towards maximum potential for the goals.
3. PFP makes everyone knows where they stand in the organization. Poor performancers and weaknesses will be surfaced which is easier for setting up training program.
4. Create a culture based on achievement. PFP ensure the only right people are hired and those people can attract more people with talent.
From which we can see that PFP improves the organization's performance to fairly reward top performers, and to help improve contributions of low performers, or remove them as the ¡¡ãdead wood¡¡À which drags down higher performers.
How to improve from different aspects
- Time frame: should PFP be used constantly or just during company's key period e.g. culture change. We need to choose wisely by considering the pros and cons it brings.
- Organization level: does the policy imply on the whole organization, or only basic workers. To let the policy more effective, probably we can use 360 degree appraisal. Not only manager can give evaluation to employees but employees can also give feedback for managers or for each other.
- Distribution curve: should we use ranking system as GE, top 20%, middle 70% and bottom 10%, or grades as A, B, C. More sharp the system is, more motivation can be brought, but also with more negative effect.
- Confidentiality and outcomes: to what extend we can publicize the fact in order to protect low performers' self-esteem, and how to deal with outcomes. Do we give notices and chances for improvement, offering training program or fire them directly?
Different level of PFP suits different industry and culture, e.g. sales department is good for sharp PFP which makes people perform as good as they can while innovative culture needs less intensive PFP as people are require to take risks. To overcome the negative perception of PFP, we need to have honest communication, thoughtful management appraisals and supportive structure to recognize and rewards those strive to perform. Offering chances to improve rather than simply punish low performance.
Finally I personally even don't know is it good or bad for having PFP in a company. I always can't stop considering its negative effect when I think it is good or I feel it also add value to company when I think it is bad. By the way, this let me associate with undergraduate study, I don't know if the universities is using the same kind of scheme that bottom part of students are asked for retaking the academic year or being kicked out, first class students get reward for scholarship. If PFP in organization is a controversial system, then the regulation in university is also controversial, then is there anyway to change?