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Performance Reviews Control Companies

by Scot Herrick on December 6th, 2006

In my post yesterday, I noted that there are two ways executives and managers can get control of a company. The first way was through budgets.

Today we’ll examine what, in my Pimp Opinion, is the second way executives can get control (and start to change the culture) of a company.

The second way is through performance reviews.

In yesterdays post, for example, we said that reviewing budgets with the people responsible for the budget on a regular basis was necessary for control. But the truth of the matter is that behavior doesn’t change just through meetings. No, behavior changes when managers start hitting the pocketbook of people responsible for implementing the work.

So it does an executive no good to review budgets in meetings and whine about the budgets not being met. It does make a big difference to take away a person’s bonus because the goals weren’t met.

I worked in a company where the Chairman and CEO believed that the amount of Days Sales Outstanding (DSO) was a good metric to meet for some good reasons — and some weird ones. The metric was so critical to the CEO that it was named the “Chairman’s Metric” in the company. The metric was named for him because when two executives didn’t meet the DSO, the performance review reflected that and he took away the entire bonus for the executives. Millions of dollars of bonus.

You either changed your behavior, or you left. Because you were going to lose dollars on the performance review if you didn’t.

Budgets and performance reviews give executives control of a company. Understanding this dynamic will help you understand what needs to be done in your work to make things happen.

Any others?

2 opinions for Performance Reviews Control Companies

  • Tris Hussey
    Dec 7, 2020 at 4:02 pm

    I have to say I’m cynical about performance reviews. There was so much pressure when I was in the corporate world not to ding people that they became a joke. I had one person reporting to me who I didn’t like, didn’t think did a good job, but couldn’t ding because of political stuff. I was really happy when this person became someone else’s problem!

  • Scot Herrick
    Dec 7, 2020 at 4:21 pm

    It’s very difficult to overcome that kind of culture as well.

    If there are good, measurable goals with associated ratings and consistent monthly review of the goals, reviews become easier.

    My sense is that is a rare occurrence out in the corporate world.

    On the other hand, if you were a CIO and you were handing out that type of review to your direct reports, it would tend to filter down. A way of getting control because performance reviews affect the pocketbook.

    But, in the middle of the mess without a culture to support it…that’s tough!

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