A Performance Management Fable

As companies wrap up their 2018 performance management cycle and compensation planning begins, I’m reminded of the idiom “the tail wagging the dog”. Allow me to explain through the use of an ancient fable.

Argos had never done well in Olympic competition. Its rival city-states of Athens, Sparta, and Corinth usually were the big winners. Nikos, the ruler of Argos, sought a way to become competitive in at least one event so that he and his fellow Argives could be proud of their athletic prowess.

Nikos met with his minister of sports. In the mile run, he learned, 4 minutes and 30 seconds was the standard for outstanding performance. Only a few of the best runners could beat that standard. The Olympic winner would need to be able to beat that time, and then some. What can we do, wondered the ruler, to inspire the many athletes of our polis to train hard and become truly competitive in the Olympic mile event?

Suspecting that rewards might be the fuel of inspiration, Nikos summoned his Treasurer. After careful analysis, the treasurer and sports minister together reported back to their ruler and presented the plan. They estimated that, of the 100 runners in the Argive city-state, there would be ten, and no more, who would be able to beat the 4-minute and 30-second standard when appropriately inspired. Given that there would be no more than ten runners capable of beating the standard, there were sufficient funds in the treasury to offer a prize of 1,000 gold drachmai to each runner who meets the standard.

Then it shall be done, proclaimed the ruler, and it was broadcast throughout the city-state that candidates for Argos’ Olympic running team would compete for positions on the team. Those who beat the 4-minute 30-second standard would each win a prize of 1,000 gold drachmai and would represent Argos at the Olympic Games.

Race day arrives. The 100 runners, each having followed an extra-rigorous training regimen, sprint away on the one-mile course in pursuit of the prizes. At the finish line, 50 runners – fully half of the field – cross before the official hourglass has counted away 4 minutes and 30 seconds.

Nikos looks at the minister of sports, who is elated that there are so many Argive runners capable of competing at the world-class level in the upcoming Olympic Games. Nikos then casts a glance at his treasurer, who is now sweating as much as any runner and worrying that there are not sufficient funds in the treasury to pay out the 1,000 gold-drachmai prize to each of the 50 runners who has met the performance standard the leaders have set.

The treasurer and minister of sports confer and finally resolve the dilemma. They add 15 seconds to each runner’s time, thereby reducing the number of runners who beat the standard from 50 to the desired number of 10. The prizes are awarded with moderate fanfare.

Ten runners go on to compete at Olympia for the greater glory of Argos. Forty runners return to their homes angry and disillusioned. They begin telling obscene Nikos jokes and circulating their résumés to Athens, Sparta, and Corinth. The fifty runners who failed to meet the standard both before and after “the adjustment” go home and enjoy the jokes.

The Moral of the Story

This ancient tale speaks to the practice followed by some modern organizations of setting guidelines for how many employees can receive performance ratings at each evaluation level. For example, guidelines might “suggest” that 10% should receive an “outstanding” rating, and so on, down to a prescribed percentage of employees who should receive an “unsatisfactory” rating. There have been numerous pieces (for example, here and here and here) condemning practices like this – collectively referred to as forced distribution – yet they continue to maintain a foothold in some of the most revered organizations.

If your organization does not have a sound performance management (PM) system in place, then distribution guidelines such as these may be helpful. Without a sound system, measuring employee performance is ambiguous and subjective. Distribution guidelines may be the only way to introduce discipline and order into the process.

However, guidelines can harm the efficacy of a sound performance management process. In an effective PM system, employees have clear expectations regarding the results they are expected to achieve and the behaviors they are expected to exhibit in pursuit of these results. When their performance is assessed, it is done so against reasonably clear standards. You may end up with 50% of your employees exceeding the standards for outstanding performance. Or you may have 50% failing to meet minimum performance standards. An employee’s performance is what it is.

How rewards are allocated should build on performance information, not subvert the system that provides it. I have seen organizations in which the counterparts of Nikos and his ministers required “outstanding” ratings to be downgraded in order to meet their percentage guidelines. Employees whose performance was legitimately outstanding had “seconds added” so that the compensation policy could be applied without surpassing the budget.

If you’ve carefully constructed a PM system only to have its output manipulated so that you can stay within budget, your PM system will quickly lose credibility. Obscene jokes will be told and rampant cynicism will cause the PM system to fall out of favor. To avoid this, take a careful look at how performance is tied to rewards and ensure it is performance driving the distribution of rewards not the compensation budget dictating how employees’ performance must be rated.