Implemented a New Performance Management System: Is It Fair and Effective for All Staff?

Implementation of a New Performance Management System

I have implemented a new performance management system, which is the vision of our chairman. The system is a monthly evaluation system where each department has to give a presentation on their monthly performance in the monthly staff meeting (includes chairman, management, and the entire staff). It's a 100-point system. If an employee gets 100 points, they receive a Green salary. If an employee gets 95 to 99 points, they receive a Yellow salary. If an employee gets fewer than 95 points, they receive a Red salary.

Here, the salary is common for each designation. There is no change in salary for technical and non-technical staff. It's the same salary for the newly promoted manager and experienced manager.

I have implemented the management's vision in the perfect way. But I don't know from an HR's point of view how good the system is. So kindly share your views. (I can provide you with more details if you require)

Thanks and Regards,
Ms. George

Dear Sunku, Thank you for the reply. There is nothing in black and white for this performance management system. Every month, our staff will be preparing a PPT based on their performance, which they will then present. The employee will be evaluated based on this presentation. If you require more inputs from me, I can provide them.

Regards, Ms. George

What you have mentioned is how you will evaluate a department and not on what criteria you will evaluate. My comments on your proposal are as follows:

a) Monthly assessment is too frequent. You can have it quarterly.

b) Have you taken into account the senior management's time spent in the whole exercise? In the proposed system, every month your top management will invest at least a day. Have you calculated the proportion of the value of this exercise vis-a-vis the investment of their time?

c) Secondly, you just cannot give targets to your HODs and tell them to attain them. You need to have an audit of the kind of staff they have. Is the staff capable of supporting their HOD? Are they trained properly?

d) Every employee expects 'x' amount of money as take-home salary. In the existing procedure, nothing is certain. There could be ups and downs in the take-home salary. How will the employees manage their family budget? Reduced take-home pay may reduce their morale also. In the process, if employees start quitting, attrition may upset the apple cart.

e) You have not given figures of employee attrition in your company. Average attrition in any industry today is around 15%. When the staff joins new, his/her performance is low. This may affect the department's performance. Will you penalize the HOD for this?

f) Lastly, the difference among green, yellow, and red bands is too low. Achieving 100% targets month after month is no easy task. If an HOD achieves 99%, then what is the loss of salary compared with green?

g) Performance many times is a result of culture also. Take the case of the Purchase Department. Every company expects their suppliers to be prompt in delivery, maintain quality, and above all, maintain consistency. At the same time, in many companies, management is wary of paying vendors on time. Procurement professionals in many companies end up addressing calls of suppliers. Their 25-33% time is just lost in this activity. How will you account for this loss of time?

h) In the case of the HR Department, in recruitment, "no show" by the selected candidate is a routine challenge. For no show, will the HR department be held responsible? If yes, what percentage drop do you expect in their performance? What band will they come in such cases?

My Recommendations: I am not against linking payment to performance, but the frequency of measurement should not be lower than a quarter. Secondly, have you trained your managers on the concept of KPIs and KRAs? Have you done an audit of the management practices followed in every department? Who did the audit and what were the parameters of the audit?

Final Comments: A company no less than Infosys bore the brunt of the introduction of the HR Policy named iRace. It caused a lot of heartburn. In fact, after the introduction of iRace, attrition, which was below the industry average all along, has crossed the average limit. You can <link outdated-removed> to read the whole story.

To avoid a situation of this kind, you may introduce the monthly or quarterly evaluation without linking the salary to performance. See how things are progressing and then link the salary to performance. Otherwise, follow the usual path of Performance Management through KPI/KRA, which is less cumbersome.

Thanks,

Regards,
Dinesh V Divekar
Bangalore – 560094
Limit of your words is the limit of your world.

You need to be very precise when setting KRA's and selecting tools to measure your work. This precision is crucial as it can impact not only attrition levels but also cause anxiety among employees. If an individual lacks presentation skills, they may struggle to effectively justify their work.

Please ensure that your communication is clear and that employees understand the expectations set for them. Providing guidance and support in developing both technical skills and presentation abilities can help mitigate any potential issues.

Thank you for your attention to this matter.

Best regards

The Performance Management System (PMS) has been implemented solely for the growth of employees and not to discourage them. If anybody is not scoring well according to your system, they should be provided with training rather than receiving a lower salary.

Regards,
Swapnil

Dear Mr. Dinesh,

Thank you for the response. We have different criteria for evaluating each department. Key Result Areas (KRAs) are assigned to each department, and the department (team + head) must deliver a presentation (PPT) on the achievement of their KRAs. If a team member scores 99 points, one point will be deducted from the department head's score as well.

Monthly Assessment

- This Performance Appraisal System reflects our chairman's vision. While similar to the 360-degree appraisal system, it is conducted monthly rather than annually. The management places great emphasis on monthly evaluations.

- We adequately staff each department and ensure realistic targets are set for all departments.

- Regarding salaries, there is some uncertainty. However, we have maintained fixed salaries based on designations. For instance, an Executive's fixed salary is set at 18,000. Previously, we had executives earning varying salaries, but we standardized it to ensure fairness. This change initially led to dissatisfaction among some employees, impacting morale and increasing attrition rates. To address this, we introduced equal red salaries for all executives, creating a more balanced scheme across departments and designations.

- Despite these adjustments, the attrition rate remains high, not solely due to salaries but also because of the manner in which performance is questioned in public forums. Managers feel humiliated when criticized in front of their subordinates, leading to discontent. I have raised this issue with management, but they insist on maintaining the current evaluation format for desired outcomes. Employees prefer department-wise meetings over public evaluations.

- I can provide a sample Head of Department (HOD) scale for reference:
- Green: 56,000
- Yellow: 48,000
- Red: 40,000

As the number of subordinates increases, the HOD's responsibilities and risks also rise.

- Management expects raw materials to be procured on time and of good quality, with deductions for rejections and delays. However, the efforts put into these processes are not always recognized.

Please provide further clarification on these points. New hires are exempt from this system for the first three months. KRAs are developed by departments, with necessary adjustments made. As a transparent system, departments cannot conceal information, and all departments are interconnected. For example, timely material receipts should be evident in the production reports.

Regards,
Ms. George

I completely agree with you. This happens here. There are employees who work hard, but when it comes to presentation, they are poor in convincing management. This leads to employee demotivation.

Dear Ms. George, I have gone through your lengthy response. There are still many things I need to know. The system you have adopted is quite advanced, wherein systems and processes are stabilized absolutely. It requires a lot of organizational maturity.

Employee Attrition Concerns

You mentioned that there is a high level of employee attrition. Have you calculated the cost of attrition? Employee attrition - whose responsibility is this? If you cannot manage attrition, then you cannot sustain a competitive advantage.

Management and Innovation Challenges

Your current procedures may lead your managers to be short-sighted. They may constantly worry about their monthly meetings and lose sight of long-term goals. If the staff or managers are demotivated, they may not suggest any new ideas. Given this situation, how will you innovate your products, services, or processes?

We live in a world where "the boss is always right" is the mantra for survival. Let's see how long the existing procedures will continue. Please keep us updated on any future developments.

Thanks,

Dinesh V Divekar

Dear Mr. Dinesh,

Well said! That's what's happening now in our company. All HODs are worried about the monthly presentation and salary. Nobody thinks for the company. At the same time, they are looking for better opportunities with less work pressure.

As you said, we live in a world where "Boss is always Right." So I have to go along with this. I feel this system is good for our plant employees, as their work is target-based.

I will keep you guys updated about the happenings.

Thanks again,

Ms. George

Dear Ms. George,

After the implementation of this system, have you observed how much time individuals spend on PPT presentations every month? Carefully watch it—there are all kinds of people in any organization. Some will be hiding some information, manipulating some. Be careful; this type of system does not promote teamwork.

After a few months, people will be wondering what to report. There should be goals and performance against those goals. To improve the overall organization's performance, a systematic scheme should be formulated after mutual discussions with HODs, taking into account an employee's self-performance; what he has done in his capacity for the goals for which he alone can make a difference. Then, the performance by an employee, which is also dependent on the department providing input to this department. Part of his performance is dependent on someone else.

Like this, there would be 3 to 4 components of the salary—this results in motivating employees not only for self-success but also for the success of others. Also, there has to be some benchmark performance for a fixed base salary. The variable part should be for performance beyond this benchmark.

Lastly, every month is too much. It could be quarterly.

Regards,
A.T. Paryani

I very much agree with Dinesh. You are only talking about the plus points of your policy and have not assessed the hidden negative points. It would be better if you could prepare an assessment along the lines of Mr. Dinesh's recommendations and present it to management so that they can review it and make a decision.

I believe every employee gives their best effort to achieve the goals set by management. Instead of offering lower salaries, you can identify the employees who are not performing well and take suitable action against them.

Regards

I agree with all of them. This way, things will not work in any organization. Believe me, at least 7 to 10 days must be wasted by each HOD for making the presentation, and they don't care about any other thing. This monthly review will not add value to the organization, but instead of the much-talking mantra of "Teamwork," here accomplishing the task by hook or crook policy will take place.

Suggestions for Improvement

I feel instead of your present system, you may just think or suggest to the management:

- A yearly goal-setting whereby all the HODs should set their departmental goals (team goals).

- Parameters for accomplishing the set goals with target dates and responsibility of each team member.

- Management should review and reset/add goals in line with the business/corporate goal and fix the parameters.

- Review of the goals in its right spirit well on time - preferably every quarter with the teams.

- Listen carefully to the team and assist them with management support and infrastructure requirements if the management realizes it is required.

- Motivate and encourage the team throughout so that even any slip-ups (failures) will also be presented to the management without any fear, and nothing will be hidden.

- Instead of your Green/Yellow/Red system, fix up some incentives which will work wonders.

- Fix up job profiles for each employee and hand them over to them. (Specify roles, responsibilities & expectations very clearly and transparently).

These are the suggestions only for better teamwork and more meaningful output.

Regards

Thank you very much for sharing your MD vision on the Performance Management system. Would you be so kind as to let us know the criteria you are adopting to determine the marks of individuals? Do you have any standard formula? How can the marks of the individual be 99, and how will the marks of the HOD be affected?

It is very informative and interesting to find out. Kindly shed more light on it.

Regards,

L. M. Sharma