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CAUT Bulletin Archives

April 2004

Performance Lessons

Donald C. Savage
The most recent book on the collapse of Enron Corp. and the scams that led to that debacle (Bethany McLean & Peter Elkind, The Smartest Guys in the Room, 2003) points out that Enron executives were devotees of merit pay based on performance indicators.

All employees were reviewed twice a year through an extensive bureaucratic process and were supposed to be measured against a variety of indicators. The authors make it clear the only performance indicators that counted were the amount of money made - regardless of the methods or the consequences - and the ability to toady senior-level executives.

The authors conclude the merit system "... had more to do with manipulating the system than with honestly evaluating talent ..." Enron's former chief financial officer, Andrew Fastow, who recently accepted a 10-year prison term and a heavy fine, "... used the semiannual Performance Review Committee to push his people ahead and buy their loyalty. Though the original purpose of the PRC had become largely perverted, most executives at least went through the motions. Fastow didn't bother." Furthermore, "... the entire process consumed huge amounts of time for everyone involved."

Nevertheless, the merit system was widely promoted to other companies and business schools as the model for the future. Management argued the system brought out the best in Enron, rewarding brains, innovation and dedication. "But," say the authors, "many thought it brought out the worst of Enron: ruthlessness, selfishness and greed. In other words, the merit system handsomely rewarded the crooks, the bastards and the toadies."

And we're getting a taste of it here where the Ontario government has proposed legislation to provide for accountability in the health service sector in the province with funding for every hospital tied to performance agreements.

Following Ontario Premier Dalton McGuinty's announcement in February, editors of the Ottawa Citizen asked some interesting questions, noting the agreements would have to be sufficiently detailed to distinguish between different types of hospitals and different circumstances.

"A big hospital with an active emergency room, such as the Civic campus of the Ottawa Hospital, deals with vastly more complex cases than smaller institutions such as the Queensway-Carleton. Some hospitals, such as the Children's Hospital of Eastern Ontario, have large foundations supporting them, giving them an unfair advantage over facilities with less photogenic patients, such as the Royal Ottawa Hospital's mental-health programs.

"Mr. McGuinty's plan would have to take this into account, but the bureaucracy required to oversee it all, hospital by hospital, could require more money than the province would spend improving the actual standards of care.

"It's not clear what the measurements would be used for, anyway. Mr. McGuinty proposes tying money to better numbers, but it seems logical that a hospital that can't meet its targets might actually need more money, not less. How to tell if the problem is bad management or underfunding?"

Can the universities be far behind?

But the British seem to have the touch for complete absurdity in these matters. They managed, according to the government's own agency, to spend £250 million on the administration of a quality assessment scheme for the universities, not a penny of which went to student aid, faculty salaries or new equipment.

That this is not a complete aberration in the U.K. is made clear in William Finnegan's, "Letter from London" in the Feb. 9 New Yorker which deals with the attempt to privatize the London Underground and to secure accountability through performance targets. The contracts were to be output-driven or performance-based "... which meant that, in order to determine payments (to the private contractors), the contracts had to anticipate an almost infinite number of possible 'outcomes,' as well as devise formulas to measure everything from 'station ambience' to 'lost customer hours.' But the task of turning this theory into actual contracts had proved Sisyphean ..."

More than $600 million of public money was spent on consultants and drawing up the contracts, which ran to several thousand pages each. The private sector involvement was fought by the Labour Mayor of London, but in the end the Blair government announced the Tube would be owned and manned by the public sector, but maintained by two private companies. The Economist noted the dismal experience of wasteful and incompetent work by private contractors when British Rail was subjected to a similar regime has bred widespread scepticism. Pity the poor passengers.

Donald C. Savage is a consultant in higher education, former executive director of CAUT and an adjunct professor of history at Concordia University.

The views expressed are those of the author and not necessarily those of CAUT.