Appraisal systems: analysis by CA Student Ben Carvell
CA Student Ben Carvell, Senior Audit Associate in Financial Services with KPMG, explored the impact of performance management systems on the manifestation of accounting scandals.
Ben is currently completing the KPMG School Leaver Audit Programme, qualifying as a CA in 2018 and graduating from the University of Exeter with BSc Accountancy later this year.
Based in Bristol, Ben mostly works with financial services clients in the National Markets audit team and has experience with a broad range of clients, from FTSE 100 companies to FinTech start-ups. As well as his studies and work, Ben is KPMG regional representative for the Employee Business Forum to represent colleagues at Executive Committee meetings every quarter.
As part of his dissertation research, he interviewed several high-profile executives including a former executive Vice President of Enron, and the HR manager for global Enron employment, to ascertain how performance contributed to the eventual closure of the business.
His paper looked at the ‘rank and yank’ management technique popular in the late 20th century, in which employees were graded on a ‘vitality curve’ and subsequently dismissed if they did not meet a certain level on the curve.
Performance appraisal systems are an integral part of businesses. However, certain approaches to performance appraisals can have a detrimental impact on the culture within a company, and can even lead to accounting scandals.
This paper aims to explore possible links between the performance management system used in Enron, particularly ‘Rank and Yank’, and its subsequent scandal and failure. Semi-structured interviews with three ex-Enron employees were analysed using thematic analysis.
The culture caused people to act in ways that were incongruent to the strategy of Enron.
This highlighted three key themes; culture, individuals, and leaders. The analysis suggests that the performance appraisal system used within Enron did not directly impact the accounting scandal, but created a toxic culture in which hyper-competitive behaviours was rewarded over personal values.
The culture caused people to act in ways that were incongruent to the strategy of Enron. There are many lessons that can be learnt from Enron, one being that certain performance management system can have a detrimental effect if not suitable for a business.
This paper concludes that “until we recognize there is a little bit of Enron in all of us, our organizations will continue to be at risk of becoming the next Enron” (Brewer, L. (2007). Is There a Little Bit of Enron in All of Us? The Journal for Quality and Participation).
The paper has suggested three key themes; culture, individuals and leaders appear to have subsequently contributed to Enron’s downfall, alongside many other factors.
The paper discussed in detail how these themes contributed to Enron’s performance management system, linking this to previous research, before suggesting areas for future development in order to stop other companies making similar decisions.
There were many factors contributing to the downfall of Enron, the culture within, the pressure both on employees and the board, from shareholders and the markets, and questionable actions from the leaders of the firm.
In our follow-up interview, we’ll be interviewing Ben on the ‘rank and yank’ method and how it can impede change and his thoughts on how to apply them to a future career.
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