Productivity undermined by paying for dead weight

Sep 30 2005 by Brian Amble Print This Article

Big differences in the way that organisations in different sectors deal with poor performers have emerged from new research, with the public sector faring particularly badly.

New research by HR consultants Hay Group shows that fewer than half of employees in the manufacturing, telecom, healthcare and high tech industries - as well as in the public sector - believe their organisations adequately address poor performance.

This compares to more than half of those working in the pharmaceutical, retail, and insurance industries who believe that their employers are getting performance management right.

The public sector was rated worst for performance management by its own employees, fewer than four out of 10 of whom felt that their employer had put in place a fair system for evaluating individual performance. It was a similar story in financial services, manufacturing and telecoms.

The research, from Hay Insight, Hay Group's employee survey group, draws on data from approximately 1.2 million employees in over 400 organisations worldwide.

"When companies don't address issues with poor performers and continue to provide them with pay increases, companies send mixed messages to employees at all levels and risk turnover of their top performers," said Tom Agnew, a senior consultant with Hay Insight.

"Companies need to consider how much compensation dollars they are tying up in dead weight at the bottom of the performance scale. And if top performers don't receive the recognition they deserve, don't be surprised if they look elsewhere," he added.

The clear message from the research is that top performing companies believe that well-differentiated rewards - even forced ranking of employees - leads to better execution.

Yet, at year-end, rather than confront poor performers with the bad news, many managers choose the path of least resistance, speeding through performance reviews and spreading merit pay out almost evenly - like "peanut butter."

However as a recent study of manufacturing operations on three continents by consultants Novations Group found, programmes aimed at managing employee performance can often fall foul of unforeseen cultural differences and taboos.

Asian societies, for example, place high value on hierarchy, tenure and experience and employees are unhappy with a performance system based on merit.

Nevertheless, the Hay research confirmed that even with tight budget constraints, many leading companies give above-average pay increases to top performers and provide nominal or no increases to those who do not perform adequately.

When combined with a sound performance management program, Agnew argues, reward programs can be effective in attracting and retaining the staff in a way that best supports organisations to grow their businesses.

Rigorous and on-going - performance planning, coaching, assessment, and reward programs help ensure that a company's top people are motivated and engaged in the organisation, he said.

"Ideally, supervisors are having performance-related discussions throughout the year. This should be an ongoing dialogue so that there should be no surprises regarding the employees evaluation and bonus."