Are we serious about Performance Appraisals?

In the upcoming conference PeopleHosp on the issues pertaining to human resource management in healthcare industry, one of the topics for discussion is performance appraisals. Having spent couple of years in IT and healthcare industry, I belong to the category of cynics for the relevance of performance appraisals. This is not to mean that I do not believe in performance appraisals. My disappointment is with the way appraisals are carried out. In our corporate scenario, both appraiser and appraisee are clueless about the concept of performance measurement and performance management. Appraisals are thought to be an activity which has to be performed during April-May and are seen as a burden and not as a performance improvement exercise. Most people would agree with me that, as employees, we have lost trust in the appraisal process because our managers never set performance goals on time, they are not clear about how to measure the performance itself, ratings are seen as a subjective indicator of the satisfaction or dissatisfaction of the manager with his juniors and favouritism is a norm rather than being an exception.

So what can be done to respond positively to this situation? Can something be done to transform performance appraisals as an employee motivation exercise?

As you would have noticed, primarily the organizations need to drill down the concept of performance linked to organization’s goals at every level. For doing that, the company leadership should have goal-setting exercises during February-March of the year so that it sets the direction for goal-setting for the individuals down the hierarchy.

Another important aspect here is for the managers to understand the job description and scope of the work of their subordinates. The performance goals have to be set ultimately in the scope of the work of the subordinates. This is where the HR comes into sharp focus. Each year the HR should engage the managers in a discussion to re-emphasize the concept of job descriptions. The scope helps the manager and the subordinate to understand whether the performance was as per the expectations or not and in which aspect did the subordinate performance outstandingly. No work outside the purview of job description can be seen as exceeding expectations because it may not be useful to company goals. For example, if person X does person Y’s job, it can’t be said that person X did more work, rather it was the inability of the manager to get the work done from Y. in the instance that Y was not able to function, say because of medical leave or pregnancy, then one can appreciate X for taking the burden of her colleague.

Most organizations follow the bell-curve (normal distribution) or the forced ranking method for rating their employees. Again, most employees don’t understand how it works and even HR people lack confidence in explaining the functioning of the method. Forced ranking method requires that each individual in a unit/department be compared to each other (forced comparison) and then a descending list of performance is prepared. So if there are 20 employees in a department and all happen to be great performers, still the manager has to arrange their performances in a descending order. How you do it is the trick. The manager and the HR have to carefully develop metrics that can objectively measure the performance of these set of people and arrive at a score. These scores can then be sorted in a descending order.

The normal distribution concept of appraisals relies on the fact that the organization has a pre-set budget to award compensation and increments to their staff. So the quartiles are identified and linked to increments. Therefore the 25^th percentile may get the lowest increments and the 75^th quartile may get the highest increments. The organization may also be using the concept of percentiles. So the 10^th or the 20^th percentiles get the lowest increments and the 80^th or the 90^th percentiles get the highest increments. Since the performances have been converted into a score and ranked in a descending order, identifying the employees who fall in which quartile or percentile is easy. What is difficult is to explain to a well-performing employee on why he has to be in a lower percentile even when his/her performance was very good. Probably that is where the HR needs to take efforts in explaining to the employees in advance how the forced ranking system works and what is the company policy in deciding the percentiles, the rationale behind it and the method of computing the same.

If we look at the situation from the NABH standards perspective, HRM 5 (Chapter 9, Human Resource Management, 3rd edition) also deals with performance appraisals in detail, requiring that such a system exists in the organization, employees should be aware of this system, pre-determined criteria for performance evaluation should exist and the evaluation should be carried out at pre-defined intervals and should be documented. Therefore, performance appraisals are linked to quality healthcare set-up in hospitals as well.

From my own experience, I have found that a communication in advance with the employees on performance goals, measurement technique and percentiles linked to company’s increment policy can reduce the heart-burning to a large extent when certain good performers have to be pushed down the percentiles because of the forced ranking.

We would be attending PeopleHosp in Bangalore on July 4^th, 2012. Hope to see you there. Talk to us and we’ll be happy to get you discount for attending PeopleHosp in Bangalore.