Performance management is meant to help organisations understand how people contribute and how work gets done. Yet many systems fall short because they treat performance as if it happens in isolation. In reality, performance is shaped by roles, teams, markets, managers, and countless structural factors. When these influences are ignored, organisations misread contribution, reward the wrong things, and create systems that feel unfair.
A better approach starts with a simple principle: separate the value a person creates from the circumstances around them.
The problem with raw performance metrics
Many organisations rely on unadjusted measures such as sales numbers, financial results, or output targets. These metrics appear objective, but they often reflect the “hand” an employee has been dealt more than their true capability. Someone working in a declining market, with a weak manager, or in an under-resourced team will look worse on paper than someone in a favourable environment, regardless of talent or effort.
- This creates several problems.
- People feel they are being held accountable for factors they do not control.
- Managers make talent decisions based on distorted information.
- Groups who are under-represented in advantaged roles fall further behind.
The result is a system that increases turnover, reduces engagement, and undermines trust.
Other industries have faced similar issues. Sport, for example, moved away from absolute numbers to relative or adjusted measures because conditions can inflate or depress results. Performance management needs the same shift.
How context skews corporate performance
Internal data from many organisations shows that ratings and promotions often depend less on individual skill and more on structural factors. Team size, manager quality, role type, market dynamics, and even regional labour pressures can influence outcomes.
If certain groups are less likely to be placed in high-advantage situations, they will consistently appear to perform less well. This is not a reflection of capability. It is a reflection of how the system allocates opportunity.
A related issue is how success is defined. Absolute business results can mislead, especially in volatile markets. In some years, outperforming peers may matter far more than hitting a fixed target. Yet many organisations resist rewarding relative performance, even when it is the clearest sign of real leadership impact.
Target setting creates another layer of noise. Some teams consistently underperform not because they lack skill, but because they inherit unrealistic goals. Others consistently exceed targets because they benefit from favourable conditions. Without understanding these patterns, leaders cannot make sense of the results they see.
Individual vs team contribution
A narrow focus on individual measures hides the influence of team-level dynamics. In some environments, employees may show weaker personal metrics as they move through mid-career, yet their presence strengthens the overall team. Their contribution shows up in knowledge sharing, stability, mentoring, and lower turnover among colleagues.
These effects do not appear in performance ratings, yet they shape the organisation’s output in meaningful ways. Treating performance as purely individual will miss the value created by people whose impact is expressed through others.
The forgotten power of workforce composition
Some organisations have found that differences in business performance are driven more by who is in the team than by incentive design. Human capital factors, skills, tenure, experience, cohesion, often explain more variance than bonus structures or merit differentiation. In these cases, trying to sharpen pay differentiation may damage the sense of team and weaken results.
Tenure in particular shows a strong and consistent effect. Teams with more experienced frontline employees often outperform others by a wide margin. The impact is large enough to materially affect financial outcomes. This suggests that career development and retention strategies may be more powerful levers than annual pay decisions.
Age dynamics create similar tensions. Older employees may appear less productive when measured individually, yet their presence improves team output and reduces attrition among younger colleagues. Their value is social, technical, and experiential, not easily captured in personal performance metrics. Traditional systems miss this entirely.
Why ratings persist, and why that’s a problem
Many organisations still assume that performance spreads neatly across a bell curve. In reality, performance ratings are heavily “sticky.” The strongest predictor of receiving a top rating is often having received one the previous year. That can reflect consistent excellence but it can also reflect the advantages of being in the right role, under the right manager, at the right time.
Persistency amplifies inequity. Those who start in low-advantage roles or who are part of under-represented groups can become trapped in a cycle of lower ratings that compounds over time. This affects pay growth, promotions, and career trajectories.
Cultural barriers and everyday realities
Performance management is not only a technical challenge; it is a cultural one. Managers often avoid difficult conversations, especially when discussions about wellbeing or local employment rules complicate the process. Many feel the administrative cost of formally managing underperformance is too high.
This leads to a cycle in which underperformers are tolerated or moved around the organisation. Teams adapt informally, frustration grows, and problems persist for years. Calibration meetings often end up being the only moment when these issues are openly addressed.
Building better performance measures
The good news is that most organisations already hold enough data to improve their systems. The first step is assessing which existing metrics are most affected by circumstances. Once identified, these measures can be adjusted in two ways:
Simple adjustments convert absolute measures into relative ones—for example, comparing someone’s results with peers in similar roles or markets.
More advanced adjustments use statistical modelling to isolate the contribution an individual makes independent of their situation.
With cleaner measures in place, organisations can test hypotheses about what truly drives performance: tenure, team composition, leadership quality, or something else. These insights can be translated into practical actions such as designing better targets, developing teams differently, or rethinking incentive design.
Even when formal ratings do not exist, proxy measures such as adjusted pay increases or bonuses can offer usable signals, provided they too are corrected for context.
Challenging assumptions about generations and motivation
Data is also a useful antidote to stereotypes. Many assumptions about “coddling,” generational differences, or shifting attitudes to feedback do not hold up under analysis. Younger employees, for example, often respond strongly to clear expectations, fair pay, and a capable manager, the same factors that motivate most people. Organisations should test beliefs with evidence rather than rely on anecdote.
Separating performance from economic conditions
A common mistake is adjusting ratings downwards when company performance is weak. This blends individual contribution with wider economic forces. It is better to keep ratings as an honest reflection of performance and vary the financial value of rewards based on affordability. This protects fairness and avoids signalling to high performers that their effort is suddenly worth less.
A practical path forward
A more accurate and fair system can be built by following five steps:
- Identify the performance measures used today.
- Assess which ones are heavily influenced by situational factors.
- Develop adjusted or relative versions of these measures.
- Test which factors predict real contribution under the cleaner metrics.
- Quantify the results and apply them in practice.
This approach moves performance management from subjective judgement to evidence-based insight. It allows organisations to recognise the value people create rather than the circumstances they inherit, and it helps build systems that feel credible, fair, and fit for a more complex world of work.
TR2050 Performance management workstream is being assisted by Haig Nalbantian, Anna Tavis, Michael Piker, Kumar Kymal, Fermin Diez, Marylène Gagné, and the participating TR2050 Community members.