The Performance Calibration Conundrum- time to discard a flawed concept
- Debashish Roy
- 1 day ago
- 3 min read
Companies ostensibly trying to drive a performance culture with calibration and forced ranking systems end up with serious, negative unintended consequences. The result? Mismatched and unmet expectations, demotivated employees and a process where everyone including leaders are relieved that its done with for the year . How did we get it so wrong? Let's examine this at 3 levels :
1. Context of Calibration
2. Pay for Performance
3. Organisation Performance
1. Isn’t calibration contextual ?: Performance calibration suits academic institutes where students are calibrated and ranked based on their academic performance in the year of study and also based on the subject(s) of study. They do not calibrate students across all years whether in an undergraduate or postgraduate programme, and across all subjects into one calibration process. Calibrating all students into one calibration curve in an academic institute would be
viewed as a totally flawed concept. How does the corporate world then justify the process? Why do leaders believe that all employees across all levels, functions and countries can be calibrated on one performance calibration curve ? This leads to being judgemental on people performance and their future potential (a completely different evaluation criteria) based on a wrong set of data.
2. Pay for Performance - does it truly differentiate? : Does a calibration curve truly differentiate the calibrated high performers from the rest through differential rewards or “pay for performance”?
Merit increases - In economies with low single-digit inflation, merit increases are typically budgeted between 2.5% to 3.5% and factor in comparatios and the performance rating. The difference in merit budget between a so-called calibrated high performer and a calibrated average performer would be a maximum of 1 to 1.5 % - does this difference truly reflect rewarding high performers differentially and a pay-for-performance philosophy?
Performance bonus - Performance bonuses are typically based on Organisation Performance, Team Performance, and Individual Performance - with the typical ratios being in the range of 60:20:20 or 50: 30: 20 or 50: 25 : 25. Organisation goals and team goals constitute a majority of an individual’s bonus, with various multipliers at Organisation and team goal achievements. If an average target bonus is 30% of base salary, then the individual component accounts for only 6% or at the max 7.5% of the base salary, which is less than a month’s pay. The difference in a rating between a high performer and an average performer on the bonus component of the Individual Objective rating is not significant to differentiate the two.
3. Organisation Performance - does it have a positive impact? : If one were to look at data trends on an Organisation’s performance prior to the introduction of the Performance calibration process and the data trend on Organisation performance after the introduction of the Performance calibration process, is there a significant difference which can be attributed to the introduction of the Performance calibration process? When the data doesn't justify this, why do
Companies spend so much of their leadership time on Performance calibration meetings, which in a global organisation can lead to a significant amount of leadership time to discuss comparisons of what is essentially apples and oranges. Wouldn't the leadership time be better spent on strategic business issues that would lead to sustainable growth for the Organisation? The annual exercise ends up frustrating a majority in an environment where regular feedback, which is developmental and forward-looking, is appreciated, but the calibration process ends up conveying a message very different from what the employee has heard and received as feedback. Many aspire to be in the “elite/ exclusive” club created by the calibration process, and don't understand the basis of
admission.
The above begs the question: if most understand that calibration is a flawed concept, why has innovation in such a core aspect of HR not kept pace with the realities of work, the disruption at the workplace, and the trend of a dispersed, but connected future of work? HR academics and practitioners have much to reflect on and reinvent in this space to be credible on how individuals and performance get uniquely assessed, recognised, and rewarded in an inclusive process.
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