Engineering Productivity Tax
(2 Min Read) Tips on how to pay it efficiently
Every mid-large+ size tech company, including tech giants, has to pay a productivity tax at least once a year1. This tax is better known as the performance cycle.
For a month, everyone is writing their self-evaluation and peers’ feedback. If you are in a leadership/management role, you may write rating rationale promo packets, perform calibration, do compensation planning, deliver feedback, etc. That’s likely to take 1-2 extra months.
But is this tax important?
Similar to income tax, every organization must pay the productivity tax. Like how income tax is “supposed to” 🙄 go into improving city infrastructure and citizen health, the organization productivity tax does improve organizational structure and health.
Hence, performance cycle activity is critical for any successful organization.
But then why call it a tax?
Because it does not directly contribute to companies bottom line, during this time, engineers are not coding, PMs are not building products plans, sales are not actively selling, marketing is not analyzing, and so on. Everyone is doing work, but that work doesn’t move the company forward.
If organizations could get away from paying the productivity tax and still retain employees, they will.
Organizations face a unique challenge. They must pay the productivity tax-efficiently, i.e., minimize the time employees spend involved in this annual ritual.
How to pay productivity tax efficiently?
Here is a couple of ways:
Employee Training: Train and educate everyone to write effective self-evaluation and peer feedback. Reducing the time employees spend performing this activity. An efficient process is faster and smoother.
Clear evaluation criteria: The synchronization process to reach fair evaluation will take longer if everyone evaluates employees based on different criteria. Having clear career pathways to evaluate against helps speed up the process.
Blocking everyone’s time: As we discussed above, there is no way to get around paying this tax. But if everyone is doing this at a different time interval, the overall organization velocity will suffer. Instead, block the same time on everyone’s calendar. With everyone focusing on the same activity simultaneously, productivity loss is minimized.
Shorten the calibration window: Performance calibration activity can take a whole year (Parkinson Law) if unbounded. Most organizations bound it to 1-2 months. But try to squeeze it down further. Imagine finishing this activity in 1 month or two weeks? That’s 50-75% gain, right there.
Do retro: Most organizations that get all of the above miss this point. Or they do it as a formality. If you squeeze time, there will be inefficiencies in the system. Among others that will come out of retro, one of the themes will be “We need more time.” Instead of defaulting back to extra time, ask why? Try to understand which activity took longer and why. And then fix that.
Most mid-large+ size organizations have to set up this process. Smaller organizations like startups usually don’t. That doesn’t mean that startups don’t have to do a performance cycle; it means that a single individual is doing all the work. As the company grows, that doesn’t scale, but for smaller orgs <50 engs, that is a valid strategy2.
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Many companies pay this twice a year.
Depending on the startup.