Annual
performance appraisal (APA) is one of the most awaited, and yet least liked,
organizational processes. On the face of it, APA provides the organization with
a methodology to set goals, review performance, calibrate rewards (and rebukes)
for performance (and non-performance) and counsel employees. Organizations see
APA as the only sustainable methodology for management by objectives and to
ensure engagement and accountability. APA provides major opportunity to review
employee performance and business performance in tandem, and also establish
engagement between managers and employees. Invariably, APA is linked to the
increment and promotion cycle of an organization which leads to great
expectations as well as strong disappointments, individually and collectively.
APA is one process which is driven by the human resources department of an
organization, regardless of the site or business autonomy or decentralization
models that could exist.
The focus of
APA, over the years, has moved from goal setting and performance reviews to
increments and promotions. Managing expectations in an equitable manner, and
moderating the financial outcomes of the APA process has become a key concern
for corporations. In this paradigm, the performance rating system, and within
that, the bell curve, have become important tools. The performance rating
system involves rating of employees in terms of various performance levels. One
typical 5 point rating scale could be below average, average, good, very good
and excellent. Some others tend to have better category names signifying that
all employees are at least acceptable; for example, average, good, very good,
excellent and outstanding. While the phraseology could vary from company to
company (including just ordinal numbers such as 1 to 5), the intent that there
would be a significant gap between a low performer and high performer is core
of all APAs.
The bell curve
The lever in
the APA process is the assumption that like all natural processes, performance
of individuals follows the pattern of a statistical normal curve, commonly
called bell curve (BC), with the vast majority being at the midpoint of the
performance spectrum and smaller minorities being at lower or higher points,
relative to the mid-point. The ratings correspond to the levels of rewards (or
increments) “granted” to employees. Over time, the concept has become an
important aspirational lever for employees with all employees wanting to be
rated better and also earn more. With the linkage between better ratings and
promotions, the aspirational lever became even more critical, negating the
expectations of a normal curve, and instead generating a curve skewed more
towards the better ratings. The general trend of supervisors not wanting to be
factual or critical about employee performance, and instead “buy” harmony only
accentuated the trend.
As if to
counteract this trend, human resource departments began to seek force-fit of
the bell curve, insisting upfront that ratings should conform to a normal
curve, with at least 5 percent being at the lowest rating and not more than 5
percent being at the highest rating. This, coupled with normalization processes
across departments and hierarchies ensure that the bell curve is followed,
almost in a mandatory manner. In a talent scarce milieu like India, managers
found an ingenuous way of circumventing the spirit of bell curve, while
following it, by resorting to special critical talent increments and special
retention increments. To the broader
employee team, it would appear that the APA process and the bell curve are
tools for the ‘empire’ to strike back at uncontrollably expectant employees. As
a result, what was envisaged as a perfectly logical methodology to align
organizational goals and employee goals and performance has become an annual
tug of war between diverse interests.
Bell that tolls
The APA process
has merits but the force fit of bell curve certainly has strong demerits. Bell curve
has the unsavoury potential to push high performers (and high performing
organizations) towards needless burnout on one hand or slide them down to a low
performance mode due to the demotivation of high performers affected by the
force fit of bell curve. High performance organizations are likely to have a
very large base of high performers, and any mandate that no more than 5 percent
need be rated as high performers would demotivate a large employee base. For
some, the bell curve would push them further for elusive better ratings in the upcoming
years leading to burnout and eventual exit for better rewarding careers
elsewhere. Some others give up
aspirations and scale down performance to reflect what they believe were
undeservedly low ratings. This downward glide path again prompts the company to
give lower ratings in the next APA cycle leading to the repetition of the disengagement
cycle, and eventual exits. While force fit of bell curve is disengaging for
high performers it, by contra, spreads needless largess for low performers and in
low performing organizations.
Attempts to
relate individual performance to operational and business metrics has not been
too successful either. Typically, business performance is influenced by factors
under the control of employees and beyond the control of employees too. In some
case, employees may face the burden of self-serving, value destroying
strategies pursed by their managers and senior leaders. The larger an
organization becomes, and the more complex its businesses become, the greater
would be the impact of disengagement and demotivation factors discussed above. Over
time, companies have started realizing that both APA and BC processes created,
progressive disengagement, if not silent strife, in organizations. As the
organizations scale up the issues only become shriller. As a result, many
global companies such as GE, Cisco, Accenture, Deloitte, Microsoft, Adobe, Infosys, MindTree and Wipro began to jettison the bell curve concept. TCS has been the latest to
jettison the system. (Ironically, GE has been a strong proponent, if not a pioneer,
of the force-fit bell curve system!). Most companies still retain the APA
concept, although everyone recognizes that regular and progressive feedback
would be more salutary than knee-jerk, once a year review.
Past, present and future
The alternative
to bell curve is nothing but abandonment of the concept itself. There are, of
course, companies still subscribing to the bell curve, a modified bell curve,
or simply any sort of curve, considered appropriate to the organisation. Those
who still subscribe to the bell curve see it more as a tool to control employee
costs, amidst all the references to performance. Others refer to a performance
curve which is right-skewed with a few outstanding performers, an overwhelming
number of good performers and very few low performers. Others let the curve
take its shape but resort to hard ‘bargaining’ to flatten the curve or reshape
it to a bell pattern. The real solution, however, is to be authentic in
assessments and let the right curve take shape. One of the important criteria
in any abandonment of the bell curve would be how equitable rewards for the
past and meaningful incentives for future can be built in. Data analytics could be a very helpful tool,
in this context, to analyse ratings, rewards, individual performance and business
metrics, and come up with normative curves for different businesses, departments,
levels, and phases.
The alternative
to APA is making it more regular, say, quarterly or monthly, and even co-terminus
with conclusion of major projects or assignments. In both the alternatives,
managers and leaders from line and HR functions have challenges; each challenge
is, of course, a developmental opportunity for individuals and the
organization. The first challenge is to develop themselves to become business
savvy, and acquire the technical and behavioural ability to view, assess and
communicate individual performance in the context of business performance. The
second challenge is to communicate oneself as a mentor rather than as a reviewer,
and develop in the team a greater emphasis on career development rather than on
increments and promotion. The third is to find the requisite time and ambience
for more frequent APAs without impacting the regular operational and business
activities, more so in larger and spread-out organisations. The fourth
challenge is to develop industry level benchmarks of performance rather than
within-the-firm relative benchmarks for assessment. The fifth challenge is to
integrate the more frequent APAs with cultural anchors such as excellence,
empowerment and accountability.
Cultural appraisal
Organisations need
to appreciate that there is more to enable better business and individual
performance than performance appraisal or bell curve. In fact, the culture of
an organization would have much greater impact on shaping the performance. Cultural
appraisal would, therefore, be a more meaningful methodology to ensure that
individuals and organizations are performance focused. Again, as in the case of
bell curve, there should not be any temptation to force fit culture on
individuals. The desired culture must emerge naturally, with genuine ownership
and sustainability. Many organizations tend to develop customised cultural
formats (and revise them, from time to time) but the core cultural anchors are
common for any firm and any industry. These are safety, quality, customer
satisfaction, empowerment, accountability, collaboration, productivity,
authenticity, transparency, ethics and human values. No company can go wrong in
its culture journey, by whatever name it is called, if these elements are
integrated into the culture map of the company.
Given the
critical influence of the above factors on performance, culture appraisal
becomes far more important than performance appraisal. Culture appraisal is far
more involved and important than morale survey. For staying true to its name,
culture appraisal has to be inclusive, open and transparent. Managers and
leaders have to question themselves and debate with their teams how they are
benchmarked on each of the cultural factors. The key issue is how the cultural
anchors can be translated from their qualitative flavour to quantitative rigour,
particularly when some of them, like safety, quality and customer satisfaction,
are strongly behaviour driven. Fortunately, all of them have direct metrics or surrogate
markers. Positive culture teams tend to be naturally high performing teams. Clear
culture maps, open and inclusive culture reviews, timely performance appraisals,
flat rewards and profit shares together constitute a stable, sustainable and
sure methodology for alignment of individual and business performance on
increasingly high trajectory, year over year.
Posted by Dr CB
Rao on April 20, 2016
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