A few years ago, everyone wanted to be “cool” and build an open-plan office. If recent reports are to be believed, however, such plans can lead to alienation in the workplace.
Now it’s the turn of performance reviews to be reviewed.
In the 1920s, George Elton Mayo, known as the father of human resource (HR) management, measured the relationship between productivity and the work environment. In the 1950s, the US government introduced the Performance Rating Act, 1950, and the Incentive Awards Act, 1954, so government employees could be rewarded for good work with cash and recognition. The most popular form of performance rating, the yearly review followed by the bell-curve rating method, has been used by companies ever since.
“Traditionally, performance reviews have two prime objectives: administrative and developmental. The first is when we review for purposes of promotions, bonus payouts, transfers, etc., and that is sadly where most companies stop today. The second is to help employees develop their potential,” says Amit Nandkeolyar, assistant professor of organizational behaviour at the Indian School of Business (ISB), Hyderabad.
Should companies find ways to change the way reviews are done, and move away from the end-of-the-year review format?
Challenges of year-end reviewing
Performance reviews generally follow a set practice—goal setting at the beginning of the year and a review by the line manager at the end. However, this format poses certain challenges.
First, because reviews are done at the end of the year, there is a probability of what experts call the “recency bias” creeping in. This refers to the idea that often only the most recent behaviour or accomplishment of an employee will be remembered by his/her manager.
“Recency of events should not influence the traditional periodic performance-tracking process. Reviewers tend to become biased and can be easily manipulated,” says Rituparna Chakraborty, co-founder and senior vice-president of staffing company TeamLease.
Another problem is the negative impact of year-end ratings, traditionally seen with the bell curve, on employee morale. The bell curve usually follows a 10-80-10 rule, where the top and bottom 10% performers are rewarded or weeded out, respectively. The remaining 80% are the average performers. Employees may feel dissuaded even after they meet their targets, because they might still end up being in the bottom 10 (in a situation where all the employees have met their preset targets). As one article, published in 2015, in the Harvard Business Review explains, “With a forced curve, a manager with a hard-working team of 10 people may only be allowed to give one or two of them the top rating. As a result, people directly compete with each other for rewards, hurting collaboration.”
The traditional bell-curve method focused more on the top performers, with the bottom-most employees usually being asked to leave. Telecom equipment-maker Nokia moved away from the bell-curve method and introduced a “1-in-90” dialog in 2015; this refers to an hour-long dialogue that takes place every 90 days between a line manager and each team member.
“We believe every employee has talent and potential, and the new approach brings them all under the scope of long-term personal development planning, with an up-to-date personal development plan. While employees can shape their own growth path and be responsible for it, with these quarterly dialogues, managers can now understand, support, follow-up and make sure there is progress,” explains Pramod Chandrasekhar, HR head, India, Nokia.
There is also a problem of year-end ratings being focused increasingly on performance, not potential. “This is especially true when we have one single review or feedback and that is linked to bonus payout, promotions, etc. We realized this shortcoming and have been working to make smaller changes in the way we review our employees,” says Ramesh Shankar, executive vice-president, HR, South Asia Cluster, Siemens.
The way out
Siemens, for one, has decided to keep performance and potential reviews separate. While retaining the year-end performance review system that is usually done between October and December, it also has a mid-year performance review in April and a separate potential review between January and March. “While the performance-review meetings decide the employee’s bonus and appraisal, the potential review is about career planning and promotion decisions. By segregating the two, we are hoping that we can help our employees learn and develop their skills, which in turn will help us increase productivity in the company,” says Shankar.
Recency bias is also something companies are trying to address through more frequent feedback and review sessions. Integrated marketing services provider Kestone retains the four-point rating system (unacceptable, needs major improvement, meets expectation and exceeds expectation) but has increased the frequency, to quarterly feedback sessions.
“Because of this (continuous conversation), employees are not surprised at the end of the year with the ratings they receive. During quarterly meetings, development plans are also shared to help them get over their weakness. We define or explain the ratings that are given so that there is objectivity in the system,” says Alok Kumar, head, HR, Kestone Integrated Marketing Services.
Kestone also has a buddy programme under which every new joinee gets a colleague to help him learn on the job for the first three months. Even later, if someone is seen to be not doing well, targeted coaching and mentoring is arranged to help improve performance.
There can also be a lot of subjectivity when a single line manager reviews and rates the employees in his team. To make the process more objective, VirtusaPolaris, a digital transformation and financial technology company, has been rethinking the process as well. “We are trying to introduce a data points driven measurement tool. For example, if the system says a manufacturing guy should create 100 pens in a day, and he created 150, we know he is an excellent contributor. There is less scope for subjective bias in such a scenario,” explains Murali Padmanabhan, senior vice-president and India head, talent management, VirtusaPolaris.
Companies should also give more importance to how a company’s vision and an employee’s personality work in tandem with each other. “The point should be to see how well or how badly does he/she perform in the current scenario of his/her company,” says Suchita Dutta, executive director, Indian Staffing Federation, an apex body on flexi staffing industry in India.
Nandkeolyar agrees. According to him, feedback frequency should match the business cycle of a company. If the company files its financial report every quarter, it makes sense to set quarterly goals and give feedback just as frequently. “This also helps maintain consistency in performance and keeps employee morale up throughout,” adds Shankar.
At the end of the day, it is the employee’s growth and satisfaction that will help companies attain their goal.
For effective evaluation
Tips for employers
Organizations must give ample opportunity to employees to develop their skills. Arrange refresher courses and skill-building workshops for those who are weak in certain areas and give them the opportunity to improve before rating them.
■ Most organizations do not have trained reviewers. The line managers are usually the ones giving the feedback but they are not trained to do it. This can result in feedback that hits employee morale. Train the person who will be giving the feedback.
■ Consider the performance history of the employee. This means that even if he/she fails to achieve one target, his/her performance could perhaps be honed in the long run.
■ Ask the employees if frequent feedback is helping them or not.
By Amit Nandkeolyar, assistant professor of organizational behaviour, ISB