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As an HR Software and Services platform that works with some of the fastest growing startups in India today, we at Quikchex have observed that the performance appraisal processes at most younger companies are often not formally structured.

A well-defined appraisal process leads to greater transparency within the organisation, and enables employees to feel that they are getting a fair share. But conducting the perfect appraisal can be a little tricky and time consuming. We thought it would be a good idea to put together 5 factors that you need to consider when designing the performance appraisal process for your organisation.

Frequency Of The Cycle

It is important to conduct at least one review a year but what about more than one? Sometimes it might be necessary to revisit some of the performance metrics more than once a year. But how do you manage the perfect appraisal for your company? Here’s what you should keep in mind:

a) How important are the KRAs of the employees in the short run?

Sales, for instance, is a crucial part of most organisations.  Since they directly impact profitability it’s best to be in a position where you can identify problem areas early.  Hence, having a quarterly or monthly review for a function like sales is a good idea. On the other hand, it may not be necessary to revisit certain functions like Accounts or HR on a regular basis. Longer appraisal cycles in this case are a more preferred approach.

b) How long will it take to measure visible change?

The question here is can you measure the effectiveness of an employee from one appraisal to another. Quarterly appraisals give employees a period of 3 months to implement a visible change and are recommended in teams where results are gradual. For instance, branding and marketing teams need time to execute campaigns and new strategies. When compared to Sales they would need more time to show meaningful change and hence should have longer appraisal cycles.

c) Can I really afford it?

Performance appraisals can be time consuming which also attaches a certain cost to it. Hence, larger companies with a greater number of employees may not find shorter appraisal cycles very appealing. When deciding your appraisal cycle, keep in mind the time and costs associated with it.

The Metrics

What are you basing your performance evaluation against? Setting up performance indicators is crucial to an effective appraisal. Key result areas (KRAs) help employees focus on the most important goals and give them purpose. For employers, it serves as a means to identify responsibility and avoids distractions from what really matters.

If you haven’t set specific KRAs for your employees, now would be a really good time to start. Here’s what you need to keep in mind:

  1. What purpose has the employee been hired for?
  2. What are the current activities that the employee is doing on a daily basis?
  3. What results would benefit the company and the team, if the employee achieves it?
  4. Are these results specific, measurable, essential and executable?
  5. Can the employee track his performance on his own?

Setting the right KRAs sets the tone for the perfect appraisal. It keeps discussions relevant to the goals and also helps identify problem areas easily.

Absolute Vs Relative Ratings

Some companies prefer to create ranking systems where employee’s ratings are relative to one another.  This means that the best employee would be ranked #1 whereas employees who haven’t had the best performance would receive a lower ranking. On the other hand, most companies prefer a non-ranked approach where employees are rated individually and their ratings are not dependent of one another.

While both of these methods have their pros and cons, it’s important to identify which one would best suit your company. Here are the pros and cons of each of them:

Absolute appraisals

+ Allows you to keep the appraisals confidential

+ Ideal for smaller companies where it’s hard to compare performance

+ Allows you to create different rating metrics for different employees

–  Does not create a competitive environment

–  Does not support decisions like promotions or increments

Relative Ranking System

+ Employees know how they’ve fared against their peers

+ Competition also provides additional motivation

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+ Decisions like promotions, layoffs, increments become easier to justify

–  Might create a negative environment

–  Results cannot be kept confidential

Ranking systems work better in organisations where teams are bigger. It’s simpler to rank employees against each other in the same team since their KRAs and activities are similar. Ranking performances inter-department, in contrast, can be a tricky affair. This method might also render employees to be reluctant in helping their peers.

Top-Down Vs 360 Degree

The appraisal process and how you manage to get the best out of it is super-important to its success. Remember that the goal of the appraisal is to provide meaning feedback to employees. Feedback that explains their performance and also helps them identify problem areas.

The 360 degree feedback process is a popular means of giving employees anonymous feedback from their peers, superiors and direct reports. Feedback from multiple sources sets for holistic evaluation and addresses issues beyond what a 1-to-1 appraisal can. However, 360 degree feedback is a resource intensive process and you should consider the limitations of it before you implement it. Here are the pros and cons of this process:

Benefits

a) Identifies areas for improvement across levels

An employee who is liked by his/her superior might not be as popular with his subordinates or may also be hurting the performance of his peers. The feedback across levels helps identify shortcomings that wouldn’t be visible otherwise.

b) Empowers the employee

As an employee the right to provide feedback to your employer can be quite empowering. This activity makes them feel more valued and reinforces the fact that it’s a two-way relationship.

c) Addresses subjective issues

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While traditional appraisals may focus on performance against targets, feedback from other levels may be able to touch on more subjective issues like behaviour, attitude etc.  This enables the employee to receive more complete feedback and even grow beyond his/her KRAs.  Managers also receive important feedback which assists them in better handling of their team and an overall happier workplace.

 Limitations

a) The process comes with costs

The cost associated with this activity is fairly high. This includes the time spent by employees to rate their peers, managers and their direct reports. Apart from this, the system has to be setup and executed meticulously keeping in mind the confidentiality of the feedback.

b) Reduces the authority of the manager

This process dilutes the power of a manager over his subordinates which might take away some of his/her control on the team. Also the fact that a manager also has to be rated by his subordinates may lead to an artificially diplomatic approach in leadership.

c) An opportunity to vent personal conflict

Employees may use this process as a means to vent personal differences towards their peers. Since the feedback remains anonymous, this might create an environment of animosity within the team.

While 360 degree feedback provides a holistic picture of an employee, it does have its downside, the biggest of which is the cost associated with it. Hence, it’s a good idea to use this form of feedback as an annual exercise. Even with its limitations, 360 degree appraisals provide immense growth opportunities for employees. It’s also a platform for all employees to communicate their opinions and make them count.

Confidentiality Of The Process

Should appraisal scores be kept confidential or should they be made known to the other employees within the organisation. People may have distinct views on what is the better approach. The confidential appraisal approach has the benefit of protecting the interests of a non performing employee. If an employee is rated poorly, it doesn’t change his social well-being within the organisation and protects him from being demotivated. It also gives appraisers an opportunity to be more blunt and direct with their appraisals.

On the other hand, the downsides of this method can be a deal breaker.  Employees cannot compare their results which would dilute the clarity of their grading.  When an employee receives his appraisal, it’s hard for him to understand how well he’s fared when compared to his peers. Also, a reward for well performing employees is the liberty to speak about it.  Compromising a benefit of the performing employees for the non-performing ones may not be the best approach.

The transparent appraisal method is more aligned with modern times. Employees know exactly where they stand when compared to peers and it makes it easier for employers to justify promotions and increments. The transparency also creates an environment of trust and may serve as a form of added motivation for employees.

Conclusion

The goal of the perfect appraisal is to leave the employee with valuable feedback that will enable them to grow with the company. From the employer’s point of view the appraisal should help him/her evaluate his workforce and make meaningful changes for the future. Setting up the process, timing and evaluation areas are crucial to getting the most out of it.

P.S: If you are looking for a place to start, you can check out our performance appraisal template that you can customise and use for your company. You can view and download it here.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.