Are Yearly Appraisals Fair When Company Growth Stalls? How Should HR Handle This?

Dear Members, I want to understand if yearly appraisals are mandatory if the employees are performing well. Is it also that they get a hike based on the company's growth? Recently, I had a discussion with my MD, and he mentioned that it might not be possible to give a hike when the company is not growing. But I am concerned about the employees. Wouldn't they be discouraged about this? Instead of putting in their efforts and performing well, their salary wouldn't be increased. To me, it is really depressing when an organization is not recognizing the talents and hard work of people.

Approaching Management as an HR Executive

Being an HR Executive, how do you think I should approach the management? Also, I need to understand if we have to do their analysis on the performance, what kind of parameters would be set for accounts people because their work is kind of tricky. Kindly suggest.

Regards

I refer to the conditionality contained in your question itself! How would one know whether the employees are doing well at all except by appraising their performance? The appraisal may be INFORMAL (which I would not advise professionally for fear of subjectivity creeping in), but it has to be there to decide if and how the employees may be rewarded by way of increments or otherwise.

Increments are additional costs and, technically at least, attract affordability questions from the top management. In principle, this is correct because these are committed costs. One has to be careful. The decision of the organization will depend upon how short-sighted or far-sighted its policies are. In unfavorable times, you need not be as generous as you would be in favorable times, but to simply ignore the question of granting increments is UNFAIR. Organizations must consider increments in such times as "investments" in employees and NOT as an expense. In fact, this should be the view always, but one must not go overboard in good times just as one need not be cruel about such issues.

I suppose you are right but are reacting emotionally rather than rationally! For all recognitions, there are costs to be considered. One cannot simply wish them away. Admittedly, even if the employees have worked well and the adverse situation is supposedly due to factors other than employee performance, the organization cannot add to the adversity of the situation by granting exorbitant increments. By default, the employee's fate is linked to organizational well-being, and that fact cannot be ignored.

As a policy, you may like to consider "modest" increments to all and "Performance Reward" to a few. Performance rewards are linked to the performance of the employee, and the same person may not qualify each year. If he does, so far so good as you have received good performance anyway, and your committed costs are controlled.

Lastly, Annual Salary increases have two components (whether recognized as such or not), namely, the "compensation for rising cost of living" and "recognition of good performance." You may like to deal with your superiors on the basis of such arguments!

Is the response helpful?

Regards,
Samvedan
April 1, 2011

Dear Mr. Samvedan,

Thank you for your prompt suggestion. I would like to add a few points that I missed in the earlier post. Performance appraisal has never formally been in practice in our organization. Also, I would like to mention that I joined this organization in October 2010. Since then, I have observed that the attrition rate of this organization is very high.

One reason I could identify is that the rules and policies of the organization exist only on paper and are not practiced. Employees who work hard have never been recognized or awarded, possibly due to a lack of cooperation from the management.

Having just an incentive structure for salespeople and nothing for employees in other departments does not justify the smooth functioning of the company or facilitate growth.

During a meeting, I pointed out that one reason for the company's lack of growth is the inadequate training provided to new employees. Training should last at least three months to ensure employees are well-equipped to perform. However, this effort is not recognized by the management, which only involves the proprietor. This lack of recognition leads to a loss of interest among employees, resulting in high turnover.

I am seeking concrete ideas to help me convince the boss. Kindly guide.

Hello, I refer to the conditionality contained in your question itself!

How would one know whether the employees are performing well without appraising their performance? The appraisal may be informal (which I would not advise professionally due to the risk of subjectivity creeping in), but it has to be present to determine how employees may be rewarded, whether through increments or otherwise.

Increments incur additional costs and, technically, raise affordability questions from top management. This is a valid concern as increments are committed costs. Organizations need to be cautious and consider their short-term and long-term policies. In unfavorable times, generosity may need to be curtailed, but completely disregarding increments is unfair. Organizations should view increments as investments in employees, even during challenging times. Recognitions also come with costs that cannot be ignored. It's essential to strike a balance between rewarding good performance and managing costs effectively.

As a policy, you may consider modest increments for all employees and performance rewards for a select few. Performance rewards should be tied to individual performance and may not be given every year. Annual salary increases typically address rising costs of living and acknowledge good performance. Present your arguments to your superiors based on these principles.

I hope this response is helpful.

Regards, Samvedan
April 1, 2011

Hello, now we are talking! As I see the situation now, it is clear that:

1. You are new to the organization - just about SIX months.
2. The organizational culture (HR) does not seem to have adopted consciously any particular orientation except the primitive!
3. You naturally have a strong desire to improve things around.

Just remember:

1. All of us as employees are, in the final analysis, helpless against bosses who have made up their minds and are not receptive to new suggestions UNLESS they are shown a direct link between HR approach and increased revenues/profits.
2. Even if you are right (and in this case you are!), it takes time to convince the bosses about the validity of a new (your) approach.
3. You are in for considerable professional work, in terms of systematizing the HR policies and procedures. Review policies/practices where they exist and recommend, if necessary, new ones. Evolve policies/practices where there are none. Document all these.
4. Attrition is a serious matter. Apart from any other thing you may try, if your organization does not have an "Exit Interview System," bring in one and ensure that HR will conduct the same. Make a report to your boss periodically about what you have learned from these.
5. Develop "Employee Engagement Programs." Rationalize wage/salary/emolument structure and install a proactive approach. I suppose you need to revamp your Performance Appraisal System too.
6. Conceptualize on establishing an "inclusive, supportive work atmosphere." Under the pressure of work, targets, and deadlines, do not let the human element suffer adversely. Ensure that each person is assured human dignity.

Look, there are plenty of things that we can establish, but our efforts are limited by the sanction of the top management. However, we must keep trying. One of our major obstacles is to convince the top management of the validity, relevance, and the dire need to adopt a dynamic, proactive HR orientation. In this area, TRAINING of decision-makers, availability of a local but good HR consultant who, being outside the organizational hierarchy, is able to speak plain truth and convince the management relying on his own previous experience from other organizations!

You could perhaps look at one more (in addition to all above) intervention. This is called an "Organizational Climate Survey." Conducted by an external agency, guaranteeing anonymity to respondents, you would generate valuable insights into the REALITY of the organizational situation.

I trust the above will be "food for thought" and would spur appropriate actions. If you need more interaction, do not hesitate to raise topics again!

Cheer up, you have a lot of hard work ahead!!

Regards,
Samvedan
April 5, 2011

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Dear Mr. Samvedan,

Thanks for your prompt suggestion. I would like to add a few points that I missed in the earlier post. Performance Appraisal has never formally been in practice in our organization. Also, I would like to mention that I joined this organization in Oct' 2010. Since then, what I have found is the attrition rate of this organization is very high. One of the reasons that I could figure out is that the rules and policies of the organization are just on paper. They are not practiced. Also, people who work hard have not been awarded ever, and in this case, I assume it's because of the management not cooperating.

Just an incentive structure for salespeople and nothing at all for the people in other departments doesn't justify the smooth functioning of the company and also "Growth" in that case.

During the meeting, I pointed out one of the reasons for the company not growing was that when people join the organization, they need to be trained well, at least for 3 months, and then they get equipped well so that they can start performing. Once they do, it has to be recognized by the Management, whereas in this case, it's just the Proprietor. Because it has not been recognized in the company, people start losing interest and quit.

I need some concrete ideas that can help me convince The BOSS.

Kindly guide

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