Content area
Full text
In late 1991, three powerful forces came together to foster change in my company, ABB Vetco Gray Inc., an oil field manufacturing and service company with worldwide headquarters in Houston, Texas. Those forces raised questions concerning one of the foundations of our human resource processes--pay for performance. At the time, we had a typical merit-pay and performance-review system, which we thought was working until we found out otherwise.
Force one. We began a reengineering project in the United States to change the way we did our business fundamentally, that is, to focus more on our customers. It wasn't long before we discovered that the cultural values associated with salary level and performance measurement--based on past performance--emphasized control, enshrined hierarchy, and were inconsistent with the reengineered environment of a customer-focused organization. There virtually was no relationship between how we paid people and profitability.
Force two. The second reason we started to look seriously at our pay and performance system was the results of an employee survey. It was clear that our current merit-pay system was viewed as unfair, had no relationship to performance, and was considered an entitlement. In addition, as we began to supply our supervisors with new total quality management tools, Dr. W. Edwards Deming's list of Seven Deadly Diseases began to make sense (see sidebar, p. 41). Deming's analysis of classic performance appraisal systems tells us they are deadly because they focus on individuals, not systems; they have too much variability; and they presume stable systems and processes exist. As a consequence, performance appraisals are not objective, consistent, dependable, or fair.(1) This analysis sounds a lot like what our employees told us about our pay-for-performance program when they were surveyed.
Force three. The last impetus that we needed to make some adjustments in our pay system was our year-end financial analysis. The year-end results showed that even though our organization was going through a difficult market downturn, which reduced revenues and put pressure on profits, our labor costs continued to rise at a compounding rate. It was time for a change.
LOOKING FOR A BETTER WAY
We began our quest to find a better way. We were confident that someone must have a new and improved model for merit pay--one that would satisfy...