Performance Anxiety: Linking Personal and Corporate Performance

Christopher Francis, Director (Organisation Strategy) City of Ballarat

PO Box 655, Ballarat VIC 3353 chrisfrancis@ballarat.vic.gov.au

As Director, Organisation Strategy, part of my brief is to facilitate organisational improvement

and so I have a great interest in our Best Value Program and in Continuous Improvement.

Now, as we know, one of the Best Value Principles is that of Continuous Improvement, which
was defined by Deming as follows: “Improve constantly and forever the system of production
and service, to improve quality and productivity, and thus constantly decrease costs.” 1 Clearly
then, Continuous Improvement could be a powerful tool to improve the organisation and deliver
significant benefits to the community.

Bearing this in mind, I began to think about the respective contributions to improved corporate
performance arising from Continuous Improvement on the one hand and Performance
Management Systems and, in particular, performance pay or as I shall call it, the performance-
incentive model, on the other.

Over the past year, stimulated by discussion with colleagues and through my own research, I
have come to believe that the performance-incentive model has not achieved what it is intended
to do and that it should be scrapped. This issue is relevant to Victoria because, according to the
2001/2002 McArthur Remuneration Survey, whereas only 40% of the Australian Councils
surveyed have performance pay, this type of reward is more prevalent in Victoria than
elsewhere.

I do not believe that it motivates people to perform better or that it can change the behaviour of a
person. A high performer who regularly gets performance payments will not become a dud if the
performance-incentive is removed; and likewise, it will not ensure sustained improvement in a
poor or average performer.

Furthermore, I believe that the performance-incentive model both undermines Continuous

Improvement and dramatically over-states the supposed causal effect of such schemes on
corporate performance.

So, let me provide you with the reasons for my position.

1. Origins of the Performance-Incentive Model

The performance-incentive model is derived from the confluence of two ideas, one in
management theory and the other in psychology. These are that people

(1) are motivated by money or a similar reward

(2) can be conditioned to behave as we wish by using rewards to motivate them.

The first idea can be found in Frederick Taylor’s The Principles of Scientific Management (1911).
Despite the bad press that Taylor now has, he had a noble goal, namely to stop “the great loss
which the whole country is suffering through inefficiency in almost all of our daily acts”. 2 For
Taylor the “principal object of management should be to secure the maximum prosperity for the
employer, coupled with the maximum prosperity for each employee.” For the employee this

1
Deming, from Out of the Crisis, available from the Deming Electronic Network Website
(www.deming.eng.clemson.edu).
2
Taylor. All subsequent quotes are taken from The Principles of Scientific Management (1911) which has been
scanned by Eric Eldred (eldred@tiac.net) and is available at (www.melbecon.unimelb.edu.au/het/taylor/sciman.htm).

1
meant “not only higher wages than are usually received by men of his class”, but also the
maximum development of the employee’s natural abilities.

Taylor believed that this “win-win” arrangement was founded on the fact that the employee most
desires a high wage and the employer most desires a low labour cost. 3 To achieve this “win-win”
arrangement maximum prosperity had to be assured. This could only be achieved when the
employee had reached the “highest state of efficiency”, namely “turning out his largest daily
output”. Put simply, “maximum prosperity can exist only as the result of maximum productivity.”

As previously mentioned, in order to achieve maximum productivity it was necessary

for both management and the employees to recognise that their most important goal
should be the

training and development of each individual…so that he can do (at his

fastest pace and with the maximum of efficiency) the highest class of work
for which his natural abilities fit him.

There were two obstacles to achieving maximum productivity: management incompetence and
the insidious practice of soldiering, or slacking off, of which there was natural slacking, from the
“natural instinct and tendency of men to take it easy” and systemic slacking, the deliberate object
of which was for the employees to keep their employers ignorant of how fast work could be
done.

At this point we can recognise Taylor’s ideas as being indicative of a deeper, older and more
complex issue: namely, the nature of work itself. I ask: does your organisation regard its
employees as fundamentally lazy, people who dislike work, avoid it when they can and need all
forms of rewards and punishment to do a day’s work? Do you agree with this manager from
General Motors:

Our control systems are designed under the apparent assumption that 90
percent of the people are lazy, ne’er-do-wells, just waiting to lie, cheat,
steal, or otherwise screw us. We demoralize 95 percent of the work force
who do act as adults by designing systems to cover our tails against the 5
percent who really are bad actors. 4

Taylor’s solution to soldiering reflected his conception of motivation – reward for greater
productivity. This is done by setting performance standards for tasks and then paying employees
according to their performance. Although this system benefited the first-class employee, those
who failed to meet the benchmark did not just earn less, they were replaced.

Although Taylor became disillusioned with what he saw as poor implementations of his ideas,
they were highly influential and have continued to influence management theory, both positively
and negatively. 5

The second idea came from the young science of psychology and, in particular, Behaviourism,
which encompassed concepts such as Pavlov’s classical conditioning and Thorndike’s Law of
Effect, which stated: Behaviour leading to a positive consequence will be repeated and
conversely behaviour leading to a negative consequence will not be repeated. 6

3
See Taksa (1992) for a different view of this “win-win” situation and, specifically, a critical appreciation of Taylorism
as a cultural ideology that aimed at controlling workplace culture and that supported an attack on organised labour.
4
Quoted in Peters and Waterman (1984:57-58). For the sociological debate about the nature of work see Fox
(1971:1-22). As regards the psychological corollaries of these views, MacGregor (1960: 49-56) neatly postulated the
two opposing positions as Theory X and Theory Y. Theory X states that the average person has an inherent dislike of
work and will avoid it if he can and therefore needs to be coerced, controlled, directed and threatened with
punishment in order to do an adequate amount of work. Theory Y presents an opposite account.
5
See Taksa (1992); Delavigne and Robertson (1994:1-47)
6
Kohn (1993:3-18)

2
Its widespread success was largely due to B F Skinner and his concept of operant conditioning,
with its positive and negative reinforcement, punishment and extinction. Its simplicity and
apparent empirical success in behaviour modification meant that it has permeated our thinking
on everything from raising children, to teaching, treatment of criminals and so-called sexual
deviance to management.

So, the logic goes that the most effective way to get employees to do what we want is either by
punishing or rewarding them. While the use of punishment was illegal, and monetary
punishments, such docking pay for errors, was discontinued through union pressure, the use of
incentives and rewards has continued.

The only problem with this model is that it is spectacularly unsuccessful.

2. The Failure of the Performance-Incentive Model

The first criticism of the performance-incentive model came within a few years of Taylor’s book.
Elton Mayo’s experiments at the Hawthorne Plant revealed that the concept of the economically
motivated employee was inadequate to explain the variety of outcomes from changing systems
of work and thus productivity. By the 1930s, others were confirming that job turnover and dis-
satisfaction are not directly linked with pay and monetary compensation is not always effective in
staff retention.

Subsequently, researchers recast motivation as being both intrinsic and extrinsic. For them,
human beings need to fill primary needs, such as hunger or sleep before they choose to fill
needs of a higher order, such as self-actualisation. When employees have adequate
remuneration, they are no longer motivated by primary needs, but rather by higher order needs
and these are intrinsic motivators.

In fact, the belief that people are motivated solely by money has been disproved repeatedly with
factors such as having pleasant colleagues, the job matching abilities and the job allowing
achievement being ranked higher than pay. One study, conducted between 1945-1965 involving
44,000 employees of the Minneapolis Gas Company found that potential employees wanted job
security foremost, followed by advancement, type of work, and pride in the company – pay was
given a low rating. 7

Nevertheless, despite some eighty years of research that consistently confirms this, on the
whole, I believe we still ignore this. For example, the US politician, Newt Gingrich congratulated
a school for paying children two dollars for each book they read, for in his view: “Adults are
motivated by money – why not kids?” 8 A recent industry survey found that 82% of companies
listed their chief retention strategy as competitive remuneration levels with the next highest
rating of 53% for flexible remuneration packaging – both of these relate to money. 9

So, we know that money doesn’t motivate or retain people but we still use it. What about its
effect on improving personal performance then? Since at least the early 1980s the evidence has
been likewise conclusively damning.

♦ Peters and Waterman (1982) stated that business needed to reject the notion that if you get
the incentives right, productivity will follow: “If we give people big, straightforward monetary
incentives to do right and work smart, the productivity problem will go away. Over-reward the

7
See for example Hampton et al (1973:3-21); Hilmer and Donaldson (1996:111); Katz and Kahn (1978:334-425) and
Pugh (1971:215-230, 305-345)
8
Quoted in Kohn (1999:12)
9
Extract from Mercer Cullen Egan Dell 1999/2000 Remuneration Conference, Sydney September 1999.

3
 10
top performers. Weed out the 30 or 40 percent dead wood who don’t want to work.”

♦ Ingraham (1993) reported that few companies had been able to establish an effective link
between pay and improved performance.

♦ Marsden and Richardson (1994) reported that there was little evidence to suggest that
employee performance in the public sector is improved by performance-based pay.

♦ Heckscher (1995) wrote that, the popular and seemingly logical idea of linking pay to
performance, seemed like a “promising way to distinguish those who are performing well
from those who are not, and to encourage the former to stay and the latter to go. But very
few managers I spoke to liked pay-for-performance plans much or thought they were
effective.” 11

♦ Hilmer and Donaldson (1996) roundly criticised gainsharing as being logically weak and
often unworkable. 12

♦ O’Donnell (1998) reported on the failure of performance-pay in the Australian Public Service
between 1992-1996. He identified many of the negative outcomes of such a system, from the
disincentive to conduct honest performance appraisals to the indignation of staff who were
“insulted by the crude assumption that they work better when bribed. They work to the best
of their abilities, honestly, collaboratively and in pursuit of corporate goals.” 13

♦ Martin (1999) reported in his study of the attitudes of staff in 26 Victorian councils that, while
staff agreed on the emphasis on achieving results, they had “weaker views about individual
rewards being based on performance”. They believed that “their colleagues care about and
strive for excellent performance…. [but they are however] less convinced that there is a clear
way of measuring performance in their organisation. Clearly managers can do more to
connect individual work performance with organisational performance.” 14

♦ Finally, the Western Australian Government [2001] states that “[where] possible, the strategic
objective to be achieved…. should be linked to the performance criteria of a responsible
officer”, but cautions that, despite the “strong and desirable link between the high level
objectives of the organisation and the lower level objectives for individual staff performance,
overseas experience indicates that a high-level performance measurement system should
never be linked to staff salaries.” 15

But why is the performance-incentive model a failure? It was to this question that the
psychologist Alfie Kohn turned in his book Punished by Rewards (1993).

Kohn collected all the available evidence on the effectiveness of reward-based motivation in
settings where it has been traditionally used, such as schools and workplaces. He concluded
that, not only does rewarding people not achieve sustainable improvement in whatever it is
intended to improve, but that it actually de-motivates and can create dysfunctional outcomes.

3. Performance anxiety

What I have said about the performance-incentive model does not mean that I do not support
the use of performance plans or information.

10
Peters and Waterman (1984:43).
11
Heckscher (1995:153)
12
Hilmer and Donaldson (1996:110-113)
13
O’Donnell (1998:35-36)
14
Martin (1999:30-31)
15
(2001:2.13)

4
As I have argued elsewhere 16 , the defining principle of public sector work is that we are
accountable to the public and that we need to demonstrate that their money is spent on things
relevant to their needs, that such expenditure will be done efficiently and that such expenditure
will be effective, that is, meeting their needs. Or as Charles Bowsher, the former Comptroller
General of the USA, said in 1993: “Public officials must be able to better assure citizens that
their tax dollars are being spent to produce useful results.” 17

However, I do have concerns about how performance measurement has been implemented and
promoted as a panacea and the degree to which we have created a culture of anxiety in the
workplace over performance. Whilst human beings love to measure and compare all kinds of
things, from cars to detergents, we don’t like doing it in the workplace. Apart from anything else,
we suspect that it will be used against us: -during our annual performance review, in the event of
a re-structuring of the organisation or – perhaps - as part of the Best Value Process.

Nevertheless, since the late 1980s both private and public sector managers have embraced
what Eccles (1991) calls the “performance manifesto”. With the rise of the New Public
Managerialism in the 1980s there was great emphasis on performance and performance
measurement, ostensibly the tools of the private sector. 18 As David Corbett wrote in 1992:
“Among the buzz-words of public sector management in the 1990s, none is more widely
discussed than performance indicators.” 19

It seemed logical then, as Hecksher remarked, that we should link pay to performance. In
Australia, performance pay was introduced in the public sector,

with the intention of closing the gap between private sector remuneration
and that of the public sector (often a major bone of contention among the
executive strata inside the public service). The measures were designed to
retain or attract top executives and stimulate improved management by
focussing them on results-based incentives. 20

Recently, the US General Accounting Office (2002) commented:

Agencies use performance pay to recognize, reinforce, and reward high

performance….. Leading organizations understand the importance of
creating effectiveness incentives for high-performing employees. 21

Former senior public servant, Warren McCann wrote in 2001:

We now have a firmly established performance culture in the public sector

throughout Australia. There is room for improvement….but the basic notion
itself – we are driven to perform – is now an integral part of everything we
do. 22

I am not entirely sure what a “performance culture” is, or that McCann’s basic notion of being
“driven to perform” is not simply a re-casting of the performance-incentive model in which it is
tacitly implied that people are punished for failure and non-performance, as much as rewarded.

This view leads to an increasingly extreme position. We might generally agree with Osborne and
Gaebler’s effusive endorsement of performance measurement:

16
Francis (2002).
17
GAO (1993). No page number.
18
See for example Armstrong (1998); O’Faircheallaigh et al (1999:15-34).
19
Corbett [1992:179]
20
O’Faircheallaigh et al (1999:154).
21
General Accounting Office (2002:16)
22
Mc Cann [2001:111],

5
 What gets measured gets done. If you don’t measure results, you can’t tell
success from failure. If you can’t see success, you can’t reward it. If you
can’t reward success, you’re probably rewarding failure. If you can’t see
success, you can’t learn from it. If you can’t recognise failure, you can’t
correct it. If you can demonstrate results, you are a winner! 23

But very quickly this can turn into the following position: “What gets measured gets done; what
gets rewarded gets done repeatedly.” 24 Finally, it becomes a frightening vision of the ultimate
performance-driven organisation, as expressed in the following comment by an executive of the
General Electric Corporation: “At GE, you perform or you die!” 25

Whilst it is vital for organisations to develop appropriate performance management systems and
performance measures, these alone will not create a more productive organisation.

4. Continuous Improvement and the Performance-incentive Model

Apart from the failure of the model to create sustainable improvement in individual performance,
we need to understand that it is fundamentally at odds with Continuous Improvement. It focuses
on the individual’s behaviour and assumes that, by improving individual performance, overall
corporate performance can be improved. But how logical is this and has it been empirically
proven?

Curiously, we can return to Taylor here because it was he who first identified the system of work
as the root of corporate performance problems. He believed that the remedy for inefficiency lay
in systematic management, “rather than in searching for some unusual or extraordinary man.”
Improvements to the system, through education, training and establishing performance
benchmarks for tasks and accurate knowledge of productivity would lead to maximum
productivity.

The major advocates of the systems approach have been those in the Quality and Business
Process Re-engineering fields. As all of us are aware, TQM is based on the principle that
performance is inhibited by variation in process outcomes, be they defects in a product, poor
workmanship, failure to meet a customer request or poor delivery of a service. The TQM
approach emphasises the fundamental role of the process, rather than the employee.

TQM’s insight, if we can call it that, is that employers blame all sorts of factors for non-
performance: government regulation, the quality of employees and their motivation, old
machinery. In fact, between 80 and 85% of problems in most organisations are systemic and
between 15 and 20% are related to the employee. Even in this last case, poor performance
might be due to poor job fit, sub-optimal environmental conditions or simply inadequate or poor
training and education. 26

Consider the corporate collapses of the past couple of years: HIH, OneTel, Harris Scarfe,
Ansett, Enron, WorldCom. Are we to assume that the thousands of employees in these
companies feel that they personally contributed to the companies’ demise because their
personal performance could have been better?

At the end of the day, it is cold comfort to the unemployed that, despite meeting their annual
performance targets, it appears to have had no positive effect on the viability of their companies.

23
Osborne and Gaebler (1993:138-165)
24
Quoted in Shapiro (1998:57):
25
Quoted in Shapiro, (1998:52)
26
See Juran (1968)

6
According to Deming a manager “needs to understand that the performance of anyone is
governed largely by the system that he works in, the responsibility of management”. 27 Therefore,
he rejects the performance-incentive model:

Eliminate slogans, exhortations, and targets for the work force asking for
zero defects and new levels of productivity. Such exhortations only create
adversarial relationships, as the bulk of the causes of low quality and low
productivity belong to the system and thus lie beyond the power of the work
force. 28

Trying to motivate employees by praise, incentives or fear (of dismissal for example) will not
improve productivity or quality. 29

In the past decade the other advocate of the systems approach has been BPR, notably through
the work of Michael Hammer. 30 In his seminal 1990 paper there is no mention of motivation or
personal performance as the cause of the crisis in American business. The focus is on the
process and how most processes are outdated. He stresses that there cannot be “breakthroughs
in performance by cutting fat or automating existing processes.” 31 Corporations do not perform
badly because American employees are lazy and American managers are inept, but because of
the “inevitable consequences of process fragmentation”. 32

Hammer concludes that, “even superior people cannot compensate for the deficiencies of
inferior processes. A company that bases its success on personal performance, even a small
company, is digging its own grave.” 33 Finally, often an organisation will have a Hero who
performs great deeds to overcome defective processes, but as he says, heroes come and go,
but a good process remains.

5. Linking Personal and Corporate Performance

In conclusion, personal performance does matter. However, this alone will not improve corporate
performance. I believe that it involves four commitments

¾ Shift the focus from individuals to processes. We need efficient and effective systems, not
the Hero, not the exceptional employee. Responsibility for ensuring this rests with
management. It cannot be delegated to employees, the consultative committee, the quality
circle or some other forum.

¾ Abolish the performance-incentive model. Apart from it not being effective, in my view, it is at
odds with the principles of public service work because it assumes that the values of private
and public sector are the same. 34

¾ Remove the anxiety about personal performance. We must use performance development
systems as positive tools to assist employees and manager. This will remove the blame and
powerlessness associated with performance reviews and the notion that the vitality of the
whole organisation depends on one person. What a guilt trip that is!

27
Deming, from The New Economics, available from the Deming Electronic Network Website
(www.deming.eng.clemson.edu).
28
Deming, from Out of the Crisis, available from the Deming Electronic Network Website
(www.deming.eng.clemson.edu).
29
Delavigne and Robertson (1994:121)
30
Hammer and Champy (1994), Hammer (1990, 1996)
31
Hammer (1990:107)
32
Hammer and Champy (1994:10 and 28)
33
Hammer (1996:102ff)
34
See O’Faircheallaigh et al (1999:1-15).

7
¾ Finally, we should develop a corporate culture that supports Continuous Improvement and
supports the joy of work and achievement, preferably within the value system of the public
sector in which service to the community is a paramount motivation. 35

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35
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public sector context.

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