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The drama for appraisals can be avoided by communication and building trust

  MUMBAI: Reena Nath (name changed), a group product manager with the foods business of a mid-sized FMCG company, was taken aback when her manager crisply communicated her performance rating to her last month. Despite exceeding her targets for the year, she was adjudged an average performer, no reasons assigned.

"Loyalty and performance mean nothing. I don't even know why," she says, bitter about the unfathomable approach to performance appraisals in her organisation. Nath's case may be an extreme form of poor organisational communication, but quite often, employees get to know at the nth hour that their company is struggling to meet its own performance benchmarks in a difficult economy.

 And that leaves them searching for answers at multiple levels. "The greatest blunder companies make is to communicate that the year has been bad around the time they have to declare the annual increment. At times, companies even do it in the increment letter," says Adil Malia , group president, HR, Essar Group.

"It's a matter of continuous communication. You cannot say in nine months that everything is hunky dory and in the 11th month, say the world is collapsing," says Santrupt Misra, head of HR at the Aditya Birla Group.

Here's what companies can do to hold employee trust and loyalty in a difficult year, as the industry heads ET spoke to suggested: Create a culture of periodic, two-way communication that eliminates ambiguities. Set and revise goals regularly , and perhaps even roll down targets in a difficult economic scenario. Make deliverables more structured and measurable.

Some companies have even moved to the more holistic performance management systems, while others have employees set their own performance yardsticks. Explain to employees the rationale for what you do, says R Sankar, executive director and head - people and change consulting , PricewaterhouseCoopers.

"The philosopher Friedrich Nietzsche said, 'If you know the why, you can live any how' . People will be able to put up with hardship and pain if they know why, and if there is a brighter future," he says.


Perhaps the worst thing companies can do, is give employees excuses."Your company is not doing well, but you say, 'I now have a different criterion; I'm looking at your competencies , and I suddenly don't find you up to the mark.' That becomes an issue," says Anita Ramachandran, founder, Cerebrus Consultants.

Apart from direct communication, companies are structuring compensation in a way that employees don't take the blow too hard. To start with, they are tweaking performance-linked pay. "I tell many clients that unless you have a strong business case, you should do marginal differentiation," says Ganesh Shermon, partner and country head (human capital), KPMG.

People who have made a difference could get a special bonus and additional benefits, he adds. Malia agrees. By tweaking the variable component, companies are developing employees' entrepreneurial skills, he says.

"If you put more skin in the game, the risk is healthy for business," he adds. In a difficult year, companies typically identify their high performers and are a little more disciplined with 'borderline' performers, says Cerebrus' Ramachandran . "That does not mean you fundamentally alter your approach to performance and compensation, but it is not unusual to take a compensation freeze," she says.


Organisations have also learnt hard lessons from the previous slowdown. "Today, companies are conscious of a talent crunch in India, and are more careful before they do drastic things. They did that in 2008-2009 , which caused demotivation and hiring difficulties," she says.

 The Aditya Birla Group takes a holistic approach to compensation. "We've looked at compensation sectorally. We believe we don't always have to be the highest paymasters because our employer value proposition is holistic," says Misra. Some organisations have even transitioned from performance appraisal to what they see as the more evolved performance management system, 360-degree feedback and balanced scorecards.

"An appraisal process is evaluative, while management is more integrative and comprehensive," says Shermon. Besides, under an appraisal system, employees often come up against a no-win scenario of hazy goals and expectations. "At the end of the year, you're bound to be very angry," says Shermon. "This is where bosses who've not done their homework, not been transparent and professional, are going to get into serious trouble," he adds.

Appraisal systems are based on the assumption that 80% of the work is done by 20% of the star performers and 20% work is done by 80% of employees, says TV Rao, professor of organisational behaviour at Indian Institute of Management Ahmedabad. Rao suggests that while the 20% should be incentivised, the 80% should be encouraged to be like the stars.