Employers utilize a number of strategies to encourage employees to go the extra mile. Often, these come in the form of individual employee evaluations where certain goals and expectations are set for employees at the beginning of a quarter, or year, and employees are measured on how well they achieve these goals. But, some employers use a more competitive evaluation method where employees are evaluated relative to their coworkers.
Cutthroat Competition
Writing for Forbes, Michael Blanding discusses one specific form of competitive incentivization: tournament-based competition. “In some cases, tournament incentives are structured in such a way that when some employees triumph, others fail,” he writes. He explains General Electric’s “vitality curve,” wherein those employees in the top 20% of performance are eligible for raises or promotions, while those in the bottom 10% are at risk of being demoted—or fired.
“Industries such as investment banking, consulting, and academia routinely include ‘up and out’ systems in which employees are either promoted or fired,” Blanding writes. “While these systems are intended to spur hard work and high levels of performance, they also introduce potential risks.”
Balancing Risk and Reward
One of the biggest risks Blanding looks at is the perception of bias in the results. He notes that, psychologically, we all tend to see our successes as a result of our own hard work and ability, while we see our failures as caused at least partially by some external factor. This can be very counterproductive. Blander cites research by Susanna Gallani and Wei Cai that even suggests that “the productivity boost or lag in response to an actual reward or punishment was short-lived in comparison to those from implicit consequences.”
Tournament-based competition can be effective if done properly; however, it exposes employers to risks that employees will question the fairness of the evaluation, thereby lowering morale and making employees less willing to put their full efforts into the goals underlying the competition. It’s important, with any type of incentive system, to think carefully about the potential consequences—both intended and unintended.