When Ragged Dick, the plucky or penniless hero of a Horatio Alger novel, takes leave of a benefactor, he receives the following sage advice:

          “Remember that your future position depends mainly upon yourself, and that it will be high or low as you choose to make it.”

Indeed, in a remarkably short time, the lad hangs up his shoeshine box and is reborn as Richard Hunter, Esq., ‘~a young gentleman on the way to fame and fortune.”

The rags-to-riches story, today represented by best-sellers like Iacocca: An Auto-biography, is a conspicuous example of America~ s romance with meritocracy— the principle that people ought to he rewarded in proportion to their talent, skill, and effort. But that cherished belief is on a collision course with the new realities of U.S. business, according to Maureen A. Scully, an assistant professor at the MIT Sloan School of Management. The rapidly spreading concept of teamwork, she says, is supposed to take the emphasis off individual achievement and encourage workers to cooper-ate in groups and learn from one another. Yet most employers still allocate raises and promotions on the basis of individual merit.

“The systems go by different names—pay for performance, pay for contribution, pay for skill, and pay for knowledge—hut they all designate winners and losers,” Scully complains. The tenor of working life when all are clamoring for recognition may not he conducive to building a community. “If you’re trying to get teamwork and a sense of ‘we’re all in this together, we don’t have a person to waste,”’ she says, “that sense of shared ownership can he severely compromised.”

Scully bases this observation on a pair of studies she has devised. In one, she surveyed 425 workers at two companies on their attitudes toward merit-based reward systems. In the second study, still under way, she is examining the dynamics of teamwork at a large manufacturing Company where production workers are divided into 22 teams. The sociologist concluded in her first study that meritocracy, as typically applied in U.S. companies, is a fallible and divisive practice. She found that performance evaluations—the main tool for judging merit—can be more demoralizing than motivating, especially when managers grade on a curve: if some workers are cited as excellent, others must be labeled only good or fair. “Although evaluations are supposed to encourage people to try harder, people can also say, ‘Well, I tried really hard last year, and I got the lowest possible raise. Even the premise that merit-based systems actually reward merit is open to question, Scully found. Employees often attribute their co-workers’ advancements to favoritism, luck, class or economic background, and uneven distribution of the best assignments.

W. Edwards Deming, the architect of Japan’s team-based production approach, long ago concluded that merit rating was incompatible with teamwork because it penalizes people who seek to improve the overall system and encourages employees to work “as prima donnas, to the defeat of the company.” Perhaps not coincidentally, Japan’s reward systems are based on seniority.

Scully, however, is not recommending that U.S. companies scrap the merit system. For one thing, she has observed that workers want their organizations to recognize outstanding work. One company she studied had two merit programs—a bell curve, which employees hated, and a two-tiered system in which the workers with the most skill were given a special classification and higher pay. When management announced plans to remove the two-tiered system, Scully says, “people were up in arms. They liked the notion that there was a special 10 percent who were recognized as excellent and who showed that you can get really good at your job. We like to have some stars; it gives us all a bit of reflected glory.”

Some Practical Advice

As for how U.S. companies can tailor the traditional merit system to the exigencies of group work, Scully is full of ideas. For example, she says, teams could he allowed to vote on whether they wanted bonuses to be distributed equally within the group or according to each member’s perceived contribution. “They could all get a 5 percent raise or else a few people would get only 1 percent, a few more would get as much as 5, others would get more than 5.”

Scully says the workers she has interviewed “have a deep native understanding about the tradeoffs of this issue.” They realize that equal distribution is more team-spirited hut can encourage freeloading. And they are aware that proportional distribution is hard to decide objectively and penalizes those who don’t toot their own horn. No doubt different teams would reach different conclusions about how to distribute rewards, says Scully. But the team approach already gives workers the power of self-management over a range of issues, “so why not this one as well?”

If company management retains the riuht to distribute raises, it ought to recognize that there are limits to the degree of incentive that arises from small differences in pay. “To think I’m going to sit here and say to myself, ~Ooh, I got 3.6 percent instead of 3.7—I’m now going to give a modicum of extra effort so I can get 3.7 next year’ is a distorted view of human nature,” says Scully. Far more sensible in cases where the pool for raises is modest, she says, would he to separate performance from pay altogether and give everyone an equal raise. There would still be opportunities to acknowledge merit. “Time can he as motivating as money. So exceptional work by an individual or by the whole team could he rewarded with comp time—or with time off to take a training course. Or if the team has rotating officer ships, a good performer could he made project leader for the next project.”

Likewise, companies must be careful not to use incentive systems to accomplish too many objectives, Scully warns. Firms that want to improve safety, for example, often try to “sideswipe” the problem by making it a line item on performance evaluations; they expect the chance of higher pay next year to make workers more safety-conscious this year. “Meritocracy distracts people from going at the problem directly,” says Scully. “Instead, put aside 2 percent of your budget to train people in safety, or don’t hire so many temp workers.” Nor are evaluations the most efficient way to promote the kind of versatility required in teamwork. “If you want people to gain skills, provide training or apprenticeship programs. Don’t say, ‘If you happen to develop more skills, we’ll raise your pay.”’

Finally, says Scully, companies should attend to the “vertical” pay scale—the difference between the highest and lowest wages with in a company. The pay ratio at Fortune 500 corporations averages 85:1, she says. While most workers do not begrudge top management the highest pay—especially if they perceive CEOs as providing jobs and other social benefits—employees Scully has spoken with often complain that overly frugal spirits behind teamwork. “You can’t convince employees that cost-cutting innovations like teamwork are necessary,” she says, “when you have huge vertical pay gaps.”

----David Brittan



November/December 1995, (pgs. 11-12)


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