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E-commerce company Snapdeal's leadership team - which was in news last month for raising Rs 590 crore from a group of five investors including Azim Premji's family office - had another crucial task at hand around the same time: that of conducting the annual employee performance appraisal. Initiated in April this year, the process went off smoothly and the outcome was announced soon after. As the celebrations of rewards and the latest round of funding faded, employees geared up to touch the next milestone: hitting the sales target of $1 billion this fiscal.
Not far away from all the action, vice-president, HR, Saurabh Nigam, began re-evaluating the company's appraisal process. The e-commerce market grew by 33 per cent to Rs 62,967 crore last year (source: Internet and Mobile Association of India). Nigam could see how, with the beginning of a new phase of consolidation, speed will be indispensable to success. As a result, the annual goals set by Snapdeal for the next year will have to be more fluid. So the company has decided that employees must be evaluated either on a half-yearly or quarterly basis. After much deliberation, Nigam concluded it would be a good idea to strengthen the connection between performance and rewards and move towards a bi-annual rewards system as well.
While Snapdeal is working to align the appraisal process to the changing times, many Indian firms still see the process as an annual ritual that simply must be done. Says Moorthy Uppaluri, MD and CEO of global HR consulting firm Randstad India, "With yet another appraisal season coming to an end and predictions that the job market will open up, it is time for companies to use performance appraisal as a tool for talent retention."
In other words, it is time to take a fresh look at the prevalent appraisal system and make it more hard working. The reason is not far to seek.
The UK-based recruitment consultancy Michael Page's Salary and Employment Forecast 2013-14 for India shows 58 per cent of employers anticipate an increase in staff numbers. With regards to demand for talent, the survey forecasts an increase in demand at the middle management level across all sectors. A steady volume of recruitment at the junior and graduate level roles is also expected. The Strategist conducted a dipstick among HR heads of leading companies and domain experts to understand what steps can be taken by companies to make the appraisal process robust.
We found out that appraisals matter, especially for middle and lower-level managers. Remember these people are responsible for the execution of business strategies drawn up by a company's leadership team. Says Alf Harris, regional director, Michael Page India, "The annual appraisal is of limited consequence to the C-suite. For instance, it may take up to three years before a new CEO's work begins to show results."
And here are the three things you could do as the HR head to make the process less stressful, more meaningful.
Leadership must drive the process…
Performance review is the time when the interpersonal skills of a company's leadership are put to test. Our survey revealed that senior leadership often relies on the HR heads to complete the appraisal process as peacefully as possible without recommending any major changes in the format year-on-year. Domain experts also told us that many organisations choose to stay away from performance reviews, paying limited attention to goal setting and salary hikes. They fail to understand that the days when it was enough to offer similar hikes across the board to keep employees happy are over. In the age of meritocracy, the onus to keep employees motivated is on the leadership.
Coming back to Snapdeal, in the first quarter of the calendar year its senior leadership team draws up the organisation's goals for the year, including topline and market share targets. The founders share these long-term and short-term goals with employees to add on/alter them as and when required. The next step involves designing the organisational matrix along with the expectations from each function. Says Nigam, "With a new phase of consolidation kicking in, topline growth is our priority. The steps needed to reach this target are clearly spelt out and assigned to relevant departments." The active participation of the top leadership team lends credibility to the process.
The country's biggest fashion portal Myntra, which was recently acquired by Flipkart, is another example of how the process can be made more inclusive. Its vice-president, HR, Pooja Gupta recalls her first meeting with co-founder Mukesh Bansal in 2010. This was the time when Myntra was changing its business model from B2B to B2C with the objective of establishing itself as an online fashion and lifestyle destination. Says Gupta, "I was happy to meet a leader who wanted to build an organisation on the foundation of a strong corporate culture."
With no specific guidelines to follow, Gupta led from the front by helping build the different functional teams and the supply chain from scratch. Casual meetings with the founders and Myntra's the then small workforce of 100 employees to understand their personal values took up a lot of her time. At that point, as part of a regular exercise, employees were encouraged to interpret the annual goals set by the founders every six months. "Mukesh played a crucial role in allowing us to experiment as much as we liked before zeroing on the HR policies," she adds.
…but employees should own it…
The Strategist asked HR experts across different industries about the right frequency of conducting performance reviews. FMCG companies Coca-Cola, PepsiCo and Parle Products give increments and promotions once a year, but the business reviews take place every six - in some cases every three - months. As we mentioned earlier, if business targets keep shifting from one quarter to the next, there is little you can do to prevent employees from asking for a more up-to-date rewards programme.
Myntra saw the possibility early in its evolution. By 2011 the company realised that the entire process of setting annual goals may have to be junked. With the priorities of the founders and investors changing, the organisation realised it had to be more agile. It decided to draw its goals on a quarterly basis. Says Gupta, "Strategy will always come from the leadership. But we have to allow every employee to own the process of execution."
At Myntra, every employee has access to their function's financial health through the year. All this has a bearing on the acceptability of the entire review process.
While the company has stuck to the traditional practice of giving annual increments after the yearly performance review, it has come up with several other reward components - variable pay each quarter, incentives for conduct and recognition for star performers. In fact, almost all the 500-odd employees in core functions like technology and marketing, apart from the call centre and delivery staff, have received stock options.
By January this year when the company geared up to initiate its annual appraisal process, employees started expressing doubts about their future in the organisation, given the media reports on the possible acquisition by Flipkart. However, the appraisal process was completed without glitches and the outcome was announced in April. Gupta says given the dearth of talent, any person employed by a A-list e-commerce portal has two to three job offers at any given time. For Myntra a robust appraisal process turned out to be the saving grace. Its post appraisal attrition this year was 5 per cent compared to previous year's average of 10 to 12 per cent.
…so that it is transparent and is perceived to be so
Speaking at the Georgia Institute of Technology early this year Coca-Cola's chairman and CEO Muhtar Kent said, "Never eat alone, never stop making new friendships, and never stop nurturing those you have." This was one of his 10 tips for the millennial workforce.
Over the years, the beverage company's global leadership team has ensured that employees who abide by Coca-Cola's corporate values consistently are adequately rewarded. Says Sameer Wadhawan, VP, human resources & services, India & South West Asia, Coca-Cola, "By the end of the appraisal cycle, we not only assess if the targets are achieved by the candidate, but how she went about it."
Put in practice this means while appraising an HR executive, the company will gather feedback from new joinees and various vertical heads on the behaviour of an appraisee during the reference year. Similar inputs will also be taken from external recruitment partners. Currently, such reviews are done every month. Since line managers encourage informal feedback during discussions, there is room for course correction. Following this system, if the employee has passed the behaviour test but missed some other hiring target by a fraction, she will be considered a winner. Providing every employee with a holistic view of their performance is worthwhile from a development perspective as well. Such feedback helps performers understand their strengths as well as areas they can improve on even if their direct supervisor was not privy to the situation.
"The biggest flaw in an average performance review is that ratings do not always reflect the efforts made by the appraisee. Today we may not be the highest paying company, but thanks to our robust appraisal process, our attrition rates are one of the lowest in the space we operate in," adds Wadhawan.
