This time of the year, every year, is very difficult for both employees and managers alike. Appraisals are round the corner and perceptions tend to play a major role. There is often a mistaken impression among employees that an appraisal is synonymous with annual pay revisions and, unfortunately, many organisations tend to reinforce this idea.
Regrettably, HR teams do so too, as they speak the same language. Whenever I get the opportunity to address students from management schools specialising in human resources, I stress this difference — that an appraisal is not the same as salary review/revision, and that these are two distinct processes.
Appraisal vs salary review
What is the big deal about being aware that an appraisal and a salary review are not one and the same, but two different processes? Well, much of the displeasure around appraisal ratings emanates from this misunderstanding, to begin with. Since the two are invariably mixed up, employees look at performance appraisal as the “justification their managers provide” for low salary raises/increments. With this misunderstanding, most appraisal discussions are vitiated from the start.
Performance, as assessed through appraisal systems, is often an input to the decisions around annual increments. But decisions around increments rely on many other equally important considerations. And appraisals, when handled with care, can serve many other significant objectives.
In fact, performance management is all about enhancing the effectiveness and impact of what every employee does for the organisation. Discussions should revolve around how well the employees leveraged their competencies, and where they need developmental interventions to make their contributions more valuable.
Dual purpose
An effective performance review is both an organisation-building process and employee development process. This focus gets lost when the entire attention shifts to annual increments. Rather than discussing the opportunities for growth and learning, and becoming more valuable as an employee, the process becomes a “battle for a better rating” to “deserve a higher raise in revision.” When managers (HR and line function) carry the same wrong impression that employees do, the entire process then becomes one of “manipulating the ratings” and a bitter “negotiation exercise.”
Recently, while redesigning the performance management process for a large IT company, I educated the employees and managers on the higher-order purpose of performance management — of learning and growth and becoming more valuable to the company. The nervousness and anxiety levels dropped considerably as they went through the performance review.
Recent trends, such as dropping the rating and ranking and bell curve, are meant precisely to take the bitterness and anxiety out of the entire performance enhancement process. Studies by McKinsey & Co have also reinforced that performance appraisals become more effective when:
~ employee goals are clearly tied to organisational goals
~ managers learn and practise how to coach; and
~ unnecessary (and often artificial) salary differences are eliminated among the vast majority of employees who come under the “meets requirements” bucket.
A small percentage of top performers can be rewarded with a higher share of the salary revision. However, the revision for those performing to the desired levels need not be aggressively different.
Increasing frequency
When performance appraisal discussions or conversations are more frequent — say, once a week, fortnight, or even a month, as opposed to half-yearly or annual — employees are truly helped to reflect on their learning, growth and contribution. It is only when these discussions happen alongside the revision planning that misunderstandings and unhappiness arise.
Organisations must also invest in making their managers good coaches. Performance conversations, when accompanied by coaching discussions, produce the optimum engagement on the part of employees. Routinely doing appraisals without coaching is found to be a lot less effective.
Going back to business schools, I never miss an opportunity to deliver a few sessions on the power of coaching and why future managers who learn to coach will succeed better. Whether organisations are investing in educating and training their managers to be good coaches or not, individually, managers who learn about coaching and hone these skills will engage, retain, and obtain great performance from their teams.