By Evans Tu (President & CEO, SYNNEX Group)
When every else scores 98 or higher on a test, scoring 97 represents an unsatisfactory performance. When nobody else gets a passing grade on a test, then passing with a score of 60 is good. We are all familiar with this kind of situation from our schooldays. Performance evaluations are relative, not absolute!
In a business enterprise, the standard measure of performance is meeting sales targets. Assuming a corporation has 50 sales departments, each with their own sales target, if every department exceeds its sales target, with a majority exceeding by 10% or more, then a department that only exceeds its sales target by 5% is an under-performing department. But if none of the 50 departments meets its sales target, and most of them can only attain around 70% of the target, then a department that manages to achieve 75% is a high-performing department.
When setting sales targets, the target has to be a challenging one; if the target can be met easily, then the sales target does not provide any real incentive, and does not really constitute as a "target" in any meaningful sense. In this situation, there is no reason to award any sales performance bonus. Generally speaking, with a challenging target, the target achievement rate will normally be in the range of 80 - 120%. Of course, there are also a small number of cases where the achievement rate may fall in the range of 60 - 70% or 130 - 140%. This reflects a normal phenomenon in which differences in achievement rate are attributable to how hard-working the salesperson is.
Regardless, you will occasionally come across the unusual situation described above where either every department exceeds its sales target, or no department meets its sales target. When this happens, it indicates that either the sales targets have not been set properly, or there has been some unusual development in the market that was not predicted in advance. Since neither of these possibilities are attributable to how proactive can be blamed on tthe sales representatives are, the sales representative hence should not be blamed for failing to meet the targets.
Otherwise, in the long term employees might get the impression that individual effort is not valued. Instead of working to boost sales, individual departments might become too preoccupied in negotiating changes in their sales targets, or become highly opportunistic as they look for ways to "beat the market." When this happens, the original purpose of sales targets - to encourage sales representatives to work harder - will have been lost.
A further point is that, when all sales reps exceed their sales target and earn high sales performance bonuses, they are unlikely to think about this rationally and reflect whether this is a result of low target setting or market changes. They are likely to think that this is their luck, or that they "deserved it." On the other hand, when most people fail to meet their target, they believe they should not be expected to take responsibility for this "bad luck" as they see it as the company's fault. There is a tendency to apply double standards, and develop a "schizophrenic" personality. It is therefore not appropriate to use absolute standards to evaluate performance. Only by adopting a relative standard of performance can one overcome the problems outlined above and maintain fairness!
Of course, employees who demonstrate this kind of double standards and "schizophrenia" outlined above are classic examples of people whose self-interest outweighs their ability to see things in the correct light. When this kind of person sees an opportunity to benefit themselves, they are not amenable to rational discussion, and are not capable of making sensible decisions. If someone like this holds a managerial position, then it is likely that the whole department is run in an unprincipled manner. Other employees in the department will also lack confidence in their leadership. Hence this kind of person should not be appointed to any managerial position.
In our schooldays, we all became familiar with the concept of relative performance. So for every company function, when evaluating employee performance, we should adopt a similar approach and base the evaluation on relative performance. We should also carefully examine the company's systems to identify blind-spots, and make adjustments when necessary.
It is also important for individual managers to be proactive about applying the right approach to evaluation. Managers should guide their colleagues towards the right way of thinking, so as to generate appropriate attitudes and behavior. This will thereby bring about a virtuous cycle of positivity and growth.