By Evans Tu (President & CEO, SYNNEX Group)

Performance at work is the product of both individual effort and collaboration between colleagues. The synergy generated by effective collaboration not only boosts individual performance, it also helps improve departmental performance significantly. On the contrary, if individual employees are only concerned about their own personal performance and fail to collaborate with one another, not only will this hinder the creation of synergy which enhances individual performance, it would also affect departmental performance poorly as a whole.

Similarly, not only should each individual department do its best, it is essential departments collaborate and support one another, to create a powerful and effective "winning team" and a multiplier effect. When cross departments work closely together, the company's overall performance will also improve.

The linkage effect is clear – collaboration from between individuals to departments, ultimately enhances the overall performance of the company.

Whilst individual effort is important, collaboration is most indispensable. How we collaborate depends on the leadership skills displayed by managers.

So with this philosophy of “emphasizing collaboration to boost synergy”, the performance incentives awarded to individual employees should not be based solely on individual performance. Instead, they should also take into account departmental performance and overall company performance. However, in the case of lower-level employees, performance assessment should still be based mainly on individual performance, with departmental performance being of secondary importance, and overall company performance even less important.

For senior managers, since their strategic leadership and management have a great impact on the company's overall performance, they need to accept responsibility for the company and department's performance. Hence, the more senior a manager is, the more significant company performance should be measured in their performance appraisal. Hence, when the company is not doing well, senior managers' performance bonuses should also be cut correspondingly.

Overall company performance depends on the performance of individual departments - some of which have been performing well, and others less well. When overall company performance is unsatisfactory, bearing in mind that performance evaluations are relative, not absolute, employees in departments that have performed badly will receive smaller performance bonuses. Those that have performed well may not be affected to the same extent, while those that have performed outstandingly well may receive larger performance bonuses than usual. However, the combined total of the performance bonuses given to employees in all departments eventually adds up to the company's total performance bonus payment as a whole. In particular, assuming that a performance baseline has been established, the disparity between high-performing departments and low-performing departments would be even more apparent.

Similarly, when the company is not performing well, the amount of performance bonus received by high-performing departments (i.e. those departments that have a larger number of high-performing individual employees) will not have fallen. When performance bonus is allocated to individual employees within the department, those employees who have performed well will still be able to receive larger performance bonuses. For low-performing departments (i.e. those departments that have a smaller number of high-performing individual employees), although the overall amount of performance bonus paid will be lower, the high-performing individual employees will still be able to receive a reasonably high performance bonus. Simply put, the better the company performs, the bigger the pie would be – high-performing employees would receive more performance bonuses, while low-performing employees will continue to receive low performance bonuses. This is based on the rationale that performance bonus should not be wasted on individuals who drag everyone else's performance down.

This type of performance bonus system design not only encourages each individual employee to do their best, it also serves to remind everyone that performance depends on synergy through collaboration. Everyone needs to work together in order to share and enjoy the benefits of excellent performance. This is a performance incentive system that encourages both individual effort and fairness.

Thus, an effective performance appraisal system must be grounded based on the following principles: “performance evaluations are relative, not absolute”, “performance needs to be calculated in relation to a baseline”, and “performance includes individual performance, departmental performance and overall company performance.” Managers must have an in-depth understanding of these concepts to ensure a performance appraisal system operates effectively and derives its maximum benefits.