HBS Case Study: Compensation and performance evaluation at Arrow Electronics

October 15, 2009

Wow, I am not sure Arrow could possibly have a worse approach to performance evaluations. While I can understand being frustrated when all of the evaluations came back essentially the same, I cannot believe that they actually made the managers do them over. How can you expect employees to find the review process to be at all meaningful when you first receive one score and set of comments, and then, when the boss is unhappy with the results, they are sent back for a re-do and you receive another set of scores that are, in all likelihood, very different from the first set. If I were one of those employees, the second set of scores would have no meaning for me, because it is clear that the changes were made on a company wide basis at management’s direction. No employee is going to think that these second set of scores is what their supervisor really believes. Honestly, I would not be surprised if some of the reviewing managers actually said as much to the employees in delivering the second set of performance reviews.

The fact that most employees will view the new reviews as being of questionable validity is only the tip of the iceberg here, however. I think most employees are smart enough to view this as being an effort to push down scores so that salaries can be kept low. The reality is, that was part of the purpose behind this re-do, since one of the problems with the first set of reviews is that everyone would be entitled to a maximum salary increase, which the company could not afford. Gaming your review process to keep salaries down is bad enough, but to do so in such an obvious way is just awful from an employee morale standpoint.

Another problem here is that upper management has just made a clear statement to the rest of the company that, in their view, when it comes to the review process, lower level management does not know what they are doing. How can you undermine your management staff like this? This kind of thing is really damaging to managers, as it results in employees not taking their managers seriously. And to undermine them on something that most employees consider pretty straightforward is even worse. If I was one of these employees, I would be wondering what upper management thinks of these managers’ performance in other areas, given that they apparently cannot even be trusted with completing performance evaluations.

What’s amazing to me, is that apparently Arrow did not feel they had done enough damage with the re-do of the performance evaluations, because they continued to try and game the system to reach what upper management saw as the “correct result.” How do you get any kind of meaningful results when you first mandate what percentage of employees receive a certain overall score, and then, when that does not work out, you mandate that every employee receive a below average score of two on at least one criteria? And how do you expect employees to take the process seriously, when it is being changed again and again and they know that every employee is required to get a two? I would guess that most employees do not really believe that they performed at a two level, and instead just feel that they received that score because corporate mandated it.  

The most telling thing to me, is that one of the goals of changing the review process was to allow upper management to be able to tell who was worthy of promotion based on the written performance review. To me, that is an impossible goal, and it’s made even less possible when you mandate that a certain percentage of employees receive a particular score or you require each employee to get a two in at least one category. As an upper level manager, you have to be able to trust your managers to know who should and should not be promoted—they are the ones dealing with their employees on a daily basis. If you are the boss, you need to trust that your managers will give you proper guidance on who should be promoted and when. You are far more likely to get that information, however, by addressing promotion issues with your managers on a one-on-one basis, rather than trying to deduce who the best candidates are from what a manager writes down on a form that he or she has to share with the employees.

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