There's a great comment to my recent Management Myth: Performance Reviews Are Useful. The writer has these questions, which I have paraphrased:
1. How do bonuses work?
Here's the problem with bonuses in a team-based organization (agile or not). How can you tell who has done which work? Who actually knows who has contributed what?
The team does. This is true whether the team is agile or not. The team always knows who has done great work, who has pulled done whatever, or if someone is hiding. It's easier to know if someone is hiding in agile.
The team always knows who has done what. The manager can try to know, by asking for status. The manager can try to know by asking for accomplishments. But the team knows.
That's the first problem.
The second problem is why is any knowledge worker's pay based on a bonus? This smacks of management by objectives. You know the kind, “We'll increase our sales by x% over this year.” All other objectives flow from that. By the time they get to you, your bonus is supposed to be based on you completing a specific project your managers were supposed to fund at the beginning of the year.
Did you read all of those “supposed to” in the previous paragraph? That's what happens with traditional project portfolio management and big-bang funding. That's part of the reason you end up with multitasking which makes everyone crazy. People are trying like crazy to fulfill their personal bonuses (optimizing at the lower levels) instead of doing what the organization needs. This is one of the reasons I wrote Manage Your Project Portfolio.
How many of you missed out on a bonus because some salesperson screwed up? (My hand is up.) We completed our technical projects. Sales sold stuff we didn't have. Sales didn't sell stuff we did have. Management didn't decide on a reasonable strategy, even though we completed our projects. Somehow this was our fault as technical people? Come on. We did our parts. No bonus for us. This is fair? Nope.
When you provide individual bonuses, you do not guarantee better results. We have data that proves this. Read Dan Pink's Drive: The Surprising Truth About What Motivates Us, Pfeffer & Sutton's Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-based Management, and Hope's Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap.
If your company is basing your compensation partly on bonus, it's because they are cheap. They are trying to tie part of your compensation to something you have no control over: revenue. Revenue sharing is fine for retirement funding. Not so fine for regular compensation.
2. How can a company know who is contributing and who isn't?
Ask the team. They know. Who else needs to know and why?
This is why you want to push the responsibility for feedback and coaching into the team. This is why you want the manager to be a servant leader.
When the manager is a command-and-control leader, no one knows nothing.
Why would anyone step forward and take responsibility? It is no one's interest to do so.
3. Without paperwork we introduce possibilities of lawsuits, particularly for big companies? If a man is paid less than a woman and it is found out, using your logic, discrimination lawsuits are reasonable since there is no ranking. HR likes this paperwork to try to protect the corp. Granted Netflix has a solution of 6 months severance, but do you have any other alternatives?
Let me separate this one. You don't need paperwork to know if people are paid comparably.
You can have salary ranges for each level. You can group each level and see what you get. I did this at one of my jobs. I discovered that when I was the only female manager, I was the one paid $10k less than the men. I brought that to my manager's attention. He hemmed and hawed. I persisted. I said the word “discrimination.” They gave me a raise to bring me parity.
I wasn't ranked. I grouped people by salary range, that's all. I didn't need ranking to see this. I needed a spreadsheet.
I hadn't done this to look at my salary by the way. I had done this to look at all of Engineering, at the request of my boss. The question is this: What problem are you trying to solve?
HR doesn't need ranking. They need common sense, which I admit, isn't all that common.
Paperwork doesn't solve problems. Paperwork protects HR from lawsuits, maybe. My paperwork proved that the company was discriminating against me. I didn't intend it that way. But that's what it proved.
4. You are arguing that management doesn't need to exist in the traditional sense (since paperwork has been a big part of the job). If agile has killed the ability of the manager to know what is going on and can't review the employees, why have a manager at all? Why not replace people-oriented managers with project-oriented managers?
Managers exist to create an environment that helps people do their best job. Managers exist to create and refine the strategy and to organize with purpose. Managers provide coaching and meta feedback. Managers initiate communities of practice. Managers manage the project portfolio. Managers provide servant leadership.
Even if managers did performance reviews, they didn't do reviews every day of the year. They didn't rank every day of the year. They certainly didn't keep their eyes on “their” employees every day of the year. (Okay, the micromanagers did. But most traditional managers were not micromanagers. They were poor lost souls who didn't know what else they should be doing.)
Project managers help a project get to done. People managers should not interfere with that. In a matrix organization, that is precisely what happens. I'm not sure what happens where you are.
I have a coaching client where the people managers are the project managers. They are also doing a form of agile. It's their form of agile. You wouldn't recognize it as by-the-book anything. But, because the VP is in charge of all of Engineering, he can see when the system is working and when it isn't.
We had a conversation last year, and I suggested their stories were too big. It was too difficult for the managers to make project portfolio decisions. It looked as if some people were slacking off and some were working very hard. I suggested my coachee might not have enough data.
“If you make the stories smaller and the work flows through all the teams more evenly, you won't need as many experts. The teams will be able to complete their work, and be able to finish their work more reliably. You will have more data on the teams. They will have more data on each other. You won't have to pluck people and move them from project to project, which makes things worse. Before you decide some people are better or worse, why not try improving the system, first?”
They decided to do that. It was quite difficult for them. It went against everything they knew how to do: architecture, estimation, planning, implementation, everything. But they decided to try. Their managers were also their project managers and guided the teams to success. My coachee, the VP, learned that the people he had thought were great were good, but there were some shining stars he had not known about. The shining stars kept their mouths shut and kept the company running. All invisible work to the VP. Not invisible to the project managers. Who happened to also be the people managers.
There is no Right Way to organize. There is no One Right Way to manage. I lean towards servant leadership, because I don't see how to have an effective organization without it.
How can we expect people, who are responsible adults, who have mortgages, children, and enter into contracts every day of their adult lives to turn off their brains at work? Why would we want them to?
Managing knowledge workers is not trivial. You try something, you get some feedback.
But performance reviews and especially ranking? No. Give me feedback on my work on a regular basis. Not performance reviews. Not paperwork. Not ranking. Don't compare to other people. Tell me when I've done something useful. Tell me when I've done something not as useful, and why.
What do you think about these four points, especially about the role of the manager?