Why is performance appraisal not a motivation factor in the Nordic?

Introduction

J3L is a Norwegian financial company based in Bergen, Norway. The company was acquired in 2010 by international owners. Following acquisition, J3L undergone significant changes with purpose of aligning local policies and processes with the rest of the international group.  For the first time the concepts of key performance indicators (KPIs), annual performance appraisal and performance-related pay were introduced and adversely perceived by both; the local management and the J3L employees.

J3L was already profitable prior to acquisition and local management was reluctant to implement new group productivity and efficiencies policies. The general perception was that the KPI benchmark was irrelevant as group had different activities and that performance appraisal was too controlling. J3L was against performance-related pay, judging it against company’s values. This is not surprising, as the country still mirrors egalitarian values and modest behaviour based on cultural construct known in Nordic culture as “Jante Law” (Smith et al. 2003). Ten propositions of Jante Law emphasise that one should not believe one is better than anyone else. This view is a contrast to performance-focused view. According to OECD data, Norway uses performance appraisal less than the average OECD country, and only at the top management level (OECD 2012).

However, J3L had to implement company performance KPIs, and when benchmarked against other entities of the group, often outperformed the rest them. J3L management was challenged by the shareholders that based on strong KPIs the implementation of performance-related pay would benefit J3L employees. J3L management strongly rejected formal performance appraisal and performance-related pay.

I reviewed motivation theories literature to explain the decision taken by the J3L management and investigated why is performance appraisal not a motivation factor in the Nordics.

Critical Analysis

Motivation literature is complex, but most motivation theories agree that a positive correlation between motivation and performance exists (Cerasoli, Nicklin & Ford 2014). Motivated workforce performs better and benefits organisation in terms of profitability and competitiveness, whereas demotivated workforce can erode profitability due to frequent sick leave, turnover and absenteeism. Furthermore, Porter and Lower model (1968) distinguishes between intrinsic motivation, where people derive satisfaction from the activity itself (Gagne & Deci 2005) in contrast to extrinsic motivation where motivation is achieved by a taJ3Lble reward. In terms of quality of motivation, intrinsic motivation is viewed of higher quality compared to  extrinsic since it is self-induced reflecting a positive potential of human nature (Ryan & Deci 2000).

Maslow’s theory of motivation defines hierarchy of five needs separated in higher and lower orders. Lower-order needs are satisfied externally (such as hunger, security and affection) whereas higher-order needs are satisfied internally. Maslow hypothesised that as one need from the hierarchy is satisfied, one needs to move the level up, as the lower need is no longer a motivator. One needs to identify that and move the level up the hierarchy. Needs such as self-respect and self-fulfilment are higher orde