A performance appraisal is the periodic assessment of an employee’s job performance as measured by the competency expectations set out by the organization. These unprecedented times have put organizations in a difficult situation on how to deal with performance appraisals, its impact on pay raises, retention of top talent and the overall morale of employees.
Organisations generally have three options:
1) Retain the differentiation factor but lower increments, if any, for everyone;
2) Increase differentiation to ring-fence the top performers; and
3) Reduce differentiation and treat everyone the same way.
A general thought is most organisations are following these methods:
1. Most organisations are likely to defer increments or not give any at all.
2. Not just past performance but the duration and impact of lockdown, expected recovery, budget, cash-flow availability, etc., are expected to drive the bell curve distribution and differentiation.
3. Organisations are likely to have stronger governance and scrutiny around performance ratings but differentiation is expected to largely look similar to earlier years.
Few points that could change in the future:
Set short-term business targets; review longer-term targets regularly.
Lower tolerance for organisation-wide poor financial performance (focus on affordability)
Use variable pay more to save cost than incentivise outperformance. Also, payouts may not be entirely formula-based
Encourage frequent check-ins and in-depth performance discussions (focus on manager maturity).
Cost-saving initiatives and identifying digitisation opportunities to be incentivised
Organisations could consider the following three priorities:
Focus on company performance rather than business unit or individual performance. Organisational revival cannot be achieved by working with silo-ed performance goals. Building a culture of “all hands on deck” may be important in the current financial year.
Bring structural changes driving organisational agility to focus on specific priorities. Decision-making chains are becoming shorter in a technology-driven work from home environment. Even after we go back to office, these chains may not revert to their earlier shape.
Inculcate this agility in goals and targets. We do not expect organisations to adopt Objective and Key Results (OKRs) immediately but we expect variants of the core OKR model becoming prominent. Goals are expected to be more team driven, outcome oriented with shorter-term targets.
There is no single solution/thought process emerging across organisations to find a unique solution.