How Can We Make Employee Performance Evaluations Fairer and More Transparent?

Dear Seniors, I am working with a manufacturing firm. We have a team of 15 employees. As per company policy, a fixed amount has been added to every employee's salary. If an employee performs at 100%, the employee will receive 100% of that amount. Similarly, if an employee performs at 40%, they will only receive 40% of that amount. However, this performance evaluation is done solely based on the judgment of his/her senior, with no specific parameters set for it.

Streamlining the Evaluation Process

As the person responsible for HR activities within the organization, I am tasked with streamlining the process. Your valuable suggestions can help me in streamlining the monthly evaluation process. I am eagerly awaiting your response.

Regards,

Establishing a Comprehensive Performance Management System (PMS)

What you need to do is establish a comprehensive Performance Management System (PMS) in your company. For this, you need to study the systems and processes of each department and design the Key Result Areas (KRAs). Performance bonuses should be linked to the score of KRA.

Mere concentration on the output by the employees cannot be the sole criterion to measure business performance or organizational performance. If you are interested in focusing on the productivity of the organization, then you need to concentrate on the following costs:

- Inventory Carrying Cost of Raw Materials
- Work in Progress (WIP) Inventory Costs
- Inventory Carrying Cost of Finished Goods
- Capital costs to run the operations
- Capacity costs
- Maintenance costs
- Quality costs
- Ordering costs
- Setup costs
- Inspection costs

If you do not focus on these costs, there is also a risk. Your workers may receive payment based on the attainment of their KRAs, but the organization could lose out. The organization could suffer because of significant mismanagement of the above costs. Additionally, workers may have several reasons why their KRAs could not be achieved. What is the use of such a PMS? You or your management team need to consider this factor as well.

Thanks,

Dinesh Divekar

Thank you for your valuable comments. I will definitely incorporate the suggestions mentioned by you for better productivity of employees and the organization.

Regards

It appears that the policy your company is implementing right now is more of a "productivity incentive scheme," and not an appraisal system. As it stands, it is a good one unless the cost implications of such a scheme were not properly budgeted or planned by your company.

Understanding Policy Rationale

HR practitioners who are new in an organization must learn and understand the rationale of a policy before attempting to modify or change it. They must also learn how to distinguish the differences and implications of various policies before trying to play smart and attempting to change them. A good start will be to look at the complaints or objections raised on the policy and try to see the suggestions by employees concerned on how it can be improved.

Difference Between Incentive Schemes and Bonuses

There is an ocean of difference between a productivity incentive scheme and bonuses. An HR practitioner who cannot make a difference may not last long in his position or responsibility.

Best regards.

Regards