Lessons from Experience: A New Look at Performance Management Systems

T. V. Rao

A lot of developments have taken place across the world in the last two decades in the concepts of performance appraisals. There has been a realization that performance appraisals are going to be subjective no matter how much we try to make them objective. This is because the appraisers are always varied in their standards, judgments, information assimilation and processing abilities with respect to their appraisees, and many other parameters. How ever performance is too important a matter to be equated with annual appraisals. Annual appraisals and ratings reduce the entire year’s effort of an individual officer to a number and the numbers are assigned by their appraiser’s keeping in context the work and performance of the individual officer. The numbers are used by some higher level authorities without an awareness of the context in which the ratings are assigned without understanding the individual of the assessor. Thereafter the ratings lose the person and deal with numbers. This is where serious injustice gets done to the performers. Performance appraisals have to be looked at differently. It is not enough to change the name. It is equally important to understand the nature, potential and complexities of performance management systems. CEOs need to be properly guided and line managers need to be assessed on how much time and effort they put in for performance management and improvements. The outlook has to shift from annual exercise to on-going activities one way me to scrap performance appraisals and focus on performance improvements and move from KPAs to activities. This paper suggests a number of changes required to make PMS more effective.

Performance Appraisals 30 years ago:
It is about thirty three years ago Larsen and Toubro asked two of us from IIMA (Dr. Udai Pareek and the author of this paper) to examine their performance appraisal system. We interviewed several managers at different level. Mr. A. M. Naik Current Chairman of L&T was one of those days whom we interviewed to ask their suggestions for improvements in their system. L&T managers gave us a number of suggestions which latter turned out to be the base for our designing an Integrated HRD System for L&T . A few years after that we were associated with the State Bank of India, BEML, Crompton Greaves, TVS Group, Murugappa Group, Bajaj Auto, L&T ECC, Steel Authority of India, LIC of India, GIC, Canara bank, Bank of Baroda  and a number of other organizations reviewed and redesigned their systems on similar lines with a development focus.

 When I look back from my experiences of the last thirty three years I realize that we are still struggling in our country with effective implementation of appraisal systems. The issue comes up again and again as in the recent past “performance linked Pay” or variable pay and performance incentives has come under focus. The following are some of the suggestions I like to make on the basis of this experience:

  1. Change from Appraisal to Management and focus on improvements and development
  2. Recognize the comprehensiveness of PMS as a system
  3. Recognize the Complexities of PMS. It has many dimensions
  4. Allocate adequate time and legislate the same and if required plan it into the Company calendar
  5. Decentralize and shift the management of PMS to line managers, unit heads
  6. Take HR managers out of PMS. Develop and Employ a new category of managers called as “Performance Managers” preferably from line jobs
  7. Make it a part of the budgeting process and Integrate with other systems of the company
  8. Create a new Index called “Performance Index” for each employee and make it quarterly and annual. It should be based on performance and potential. It should include 360 Degree Feedback (feedback from juniors, internal customers etc. besides the boss). The Index should include weightage given to time allocated for managing the performance of self and juniors, interpersonal competence (dyadic relations), team work and other organizational contributions through one’s initiative (contributions to intellectual capital and talent management). The index could be issued in the from of a certificate and converted into encahsable points and used for recruitment and promotion purposes etc.
  9. Use technology to support your work.
  10. Implement PMS rigorously and give it the seriousness it deserves.

These recommendations are explained below with reasoning:

  1. Change from “Appraisal” to “Management” and focus on “Contributions, and Improvements”

I have realized that one of the most significant mistakes we have made is in titling the performance appraisal system. We continued to use the term “Performance Appraisal”. After serious reflection of this issue I have come to the conclusion that it is high time we abandon the term “Performance Appraisals”.

One may ask what is there in the name? This is what I kept asking and did not push for change for several years. I now realize that there is a lot in the name. The title stresses that the purpose of the system is “ appraisal”. The term appraisal indicates that the main purpose of the system is ‘Appraisal”, which means evaluation. It amounts to reducing the entire year’s or six months work of an individual in to a number. Numbers have some great properties. They are intended to render the so called objectivity and comparability. Unfortunately it this comparability and objectivity that has played havoc in the lives of many employees. It caused a few people to get promoted and some of them undeservingly, a few others to leave their jobs, and yet a few others to walk into office every day with low interest and satisfaction and carry on with their jobs.

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