Competitive HR practices: Good incentive or a poisoned chalice?
A competitive corporate culture can easily become highly toxic and produce a climate of distrust
In the documentary Enron: The smartest guys in the room Charles Wickman, a former trader at the energy corporation, declares: “if I’m going to my boss’s office to talk about compensation, and if I step on some guy’s throat and that doubles it then I’ll stomp on that guy’s throat". Like many companies at the time, Enron was a strong advocate of HR practices involving forced rankings and highly asymmetric reward structures that favoured star performers.
Enron was not alone in using practices that encouraged and nurtured competition among its employees. The trend persists today. A look at recent business newspapers and magazines reveals that – albeit controversial – pitting employees against each other is not uncommon in corporate life. Amazon, for example, showed itself to be a proponent of 'purposeful Darwinism' as recently as 2015, when a New York Times article revealed that the retail and tech titan favours a people management strategy geared toward internal competition.
So how do companies foster structural competition among their employees? Our research identified two hallmarks of such competitive practices. First, a negative interdependence among employees; a positive outcome (a promotion or a higher bonus) for one employee has an unavoidably negative impact on another. This sets up a win-lose dynamic among the workforce. Second, competitive HR practices are based on relative comparisons among employees or, in other words, employees are continuously ranked against each other in some way.
With this in mind we can make a laundry list of the methods sparking internal competition that only starts at forced rankings. Other HR practices such as up or out contracts, 'winner takes it all' awards, as well as exclusive talent management systems function in a similar fashion.
The proponents of such competitive HR practices hope to inspire motivation instead of unhealthy infighting that is the usual result. Whether these methods actually fuel employee efforts and motivation is still under heavy debate. As our work highlights, competitive HR practices are a poisoned chalice. The most obvious flip side is the negative behaviour triggered by this structural competition. These practices encourage employees to focus, and perhaps even become fixated, on the performance of more successful colleagues. Being constantly faced with the success and rate of progress of others perpetuates envy, an emotion that has been shown to result in overwhelmingly negative consequences. For one, envy encourages employees to undermine and sabotage the performance of peers. It also undercuts job satisfaction and reduces trust both among colleagues and in the employer.
Companies that nevertheless insist on competitive HR practices should be careful putting them into practice. Paying particular attention to the fairness of internal competition is a good start. Fair procedures help employees better cope with competition, by signalling mutual respect and strengthening a shared organisational identity. Companies are thus well-advised to ensure that their practices are consistent and bias-free regardless of role or timeframe, that they are accurate and, finally, that they enable employees’ voices to be heard. Another crucial aspect is to reduce path dependency of such procedures as much as possible. HR practices that, albeit competitive, provide employees with multiple, recurring and equal opportunities to succeed indicate a level playing field. Often precisely the opposite is the case; where competitive HR practices create strong path dependencies. In such scenarios the rankings not only determine the extent of an employee’s bonus, they also grant employees 'star' status. Being labeled 'a star' determines in turn the employee’s chances of admission into talent management programmes and progress in the organisational hierarchy.
Enron’s example reminds us that to design competitive HR practices in a way that prevents employees from stepping on each other’s throats is a challenging endeavour. A competitive corporate culture can easily become highly toxic and produce a climate of distrust, with ultimately devastating consequences for both the company and its stakeholders.
Anastasia Sapegina is a PhD candidate and research fellow at the Institute of Work and Employment Research, University of St. Gallen
Antoinette Weibel is a full professor of human resource management and director at the Institute for Work and Employment Research at the University of St. Gallen, Switzerland