Had a call last week from a colleague who uses 360-degree feedback annually to help several hundred employees develop their skills.

"Until now, we've also factored the 360 results into decisions about merit pay," she said.

"But management wants to re-think that. Give me some guidance I can take to them."

Why Use 360 To Calculate Merit

Managers hate deciding merit pay.

They fear giving increases that might smack of favoritism. Or withholding money that's desperately needed.

There's too much responsibility and too little accuracy.

So they like 360-degree feedback. It's a source of information about performance that is external, reliable, and reduces their angst.

The Case Against Using 360

The problem is that 360 is so effective because of a delicate matrix of trust.

Persons being assessed trust their responders to be more-or-less unbiased. Why would anyone be motivated to slant feedback for or against them?

As soon as money comes into the picture, everything changes. The critical issue is no longer skills development but paying the mortgage.

This tempts peers to exaggerate the positive.

Whether said out loud, or by implication, it amounts to: "I'll give you a positive assessment, and you give me the same. We'll both benefit financially."

Similarly with disaffected responders. "I'll do everything to make sure s/he doesn't get a merit increase," they may think.

Once participants begin to mistrust some of their assessments, they effectively stop taking any of them seriously. The power of 360-degree feedback to help them improve their performance is weakened.

As trust crumbles individually, questions arise about the organization.

What about those responsible for the compensation process? Is their commitment to 360 strategic, or just a easy way out of the compensation muddle?

And what happened to the responsibility of senior management to prepare for economic storms by increasing the skills and productivity of employees?

For the majority of organizations, the positive impacts of 360-degree feedback are way too valuable to be compromised by the inflammatory issue of compensation.